On January 13, 2010, the Division of Enforcement of the U.S. Securities and Exchange Commission announced a series of new enforcement initiatives designed to encourage greater cooperation from individuals and companies when the Commission pursues investigations and enforcement actions.
As part of the initiatives, the Division of Enforcement is authorizing its staff to use previously unavailable tools that are designed to encourage individuals and companies to report violations and provide the Commission assistance in its investigations. These tools, described in Section 6.2 of the Division of Enforcement’s Enforcement Manual, in the chapter titled “Fostering Cooperation,” include:
- Formal written cooperation agreements pursuant to which the Division of Enforcement agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance.
- Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.
- Formal written agreements in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings. These would be used in limited circumstances deemed appropriate by the Commission.
The Commission is also streamlining the process for submitting witness immunity requests to the Justice Department for witnesses who can assist in investigations and related enforcement actions.
Finally, the Commission has promulgated a policy statement titled “Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions.” This statement sets out the analytical framework used by the Commission to evaluate and credit an individual’s cooperation. The Commission identifies four general considerations in this policy statement:
- The assistance provided by the cooperating individual.
- The importance of the underlying matter in which the individual cooperated.
- The societal interest in ensuring the individual is held accountable for his or her misconduct.
- The appropriateness of cooperation credit based upon the risk profile of the cooperating individual.
In conjunction with the announcement of the new enforcement initiatives, the Division of Enforcement also announced the creation of five national units dedicated to particular, highly specialized and complex areas of securities law. These five areas are:
- Asset management, which will focus on investigations involving investment advisers, investment companies, hedge funds, and private equity funds.
- Market abuse, which will focus on investigations involving large-scale market abuses and complex manipulation schemes by institutional traders, market professionals, and others.
- Structured and new products, will focus on complex derivatives and financial products, including credit default swaps, collateralized debt obligations, and securitized products.
- Foreign corrupt practices, which and will focus on violations of the Foreign Corrupt Practice Act.
- Municipal securities and public pensions, which will focus on misconduct in the municipal securities market and in connection with public pension funds. This misconduct includes offering and disclosure fraud, tax or arbitrage-driven fraud, pay-to-play and public corruption violations, public pension accounting and disclosure violations, and valuation and pricing fraud.
The Division also has created a new Office of Market Intelligence that is responsible for the collection, analysis, and monitoring of tips, complaints, and referrals.