Earlier this year, the SEC’s Division of Enforcement announced that it has formalized its enforcement procedures by outlining clear paths to follow during the course of an investigation. The Division outlined that it would use proffer agreements, cooperation agreements, deferred prosecution agreements and nonprosecution agreements to garner cooperation, reward cooperation and resolve cases. Here are six things you need to know about the new rules:
1. Cooperation is king. The crux of the new rules is to encourage increased cooperation. The Division has made clear that it wants to “foster cooperation” between its investigators and those it is investigating. By formalizing these agreements, the Division is looking to increase the frequency of cooperation.
2. The Division is not the Commission. Several of the new agreements bind the Division of Enforcement but do not bind the Commission itself, which can take recommendations from the Division but is not bound to follow them.
3. Speed matters. One of the factors the Division will consider in how it resolves cases is the speed with which cooperation occurred. Taking steps to stay ahead of the curve will be crucial as the investigation continues and reaches resolution.
4. Individuals may turn on the company. If the Division begins an investigation, individual employees of a company may see themselves as potential targets and may want to take advantage of the Division’s new formal process. The Division wants “whistleblowers” to come forward quickly, especially if they see a possible benefit to themselves.
5. The SEC is not the DOJ. Just because the SEC has agreed to enter into a deferred prosecution agreement or even a nonprosecution agreement does not mean that the DOJ or any of its various U.S. Attorneys’ Offices, which might also be conducting an investigation, will follow suit. In short, resolving the matter with the SEC does not guarantee the same resolution with the DOJ.
6. Time will tell. With the announcement of these new rules, one thing is clear: The landscape has changed, but no one really knows how. As the Division and the SEC gain experience with these new processes, there will be more clarity regarding their application in specific circumstances, which will help clarify how to respond to an SEC enforcement investigation. Moreover, the Division continues to mull additional changes. For example, it may increase the use of fact statements and the publication of benefits of cooperation. For more about the SEC’s cooperation initiative, click here.