Presented to: ACC Compliance & Ethics Committee June 15, 2010

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Seaboard for Individuals: The SEC Announces Cooperation Incentives for Individuals in Fraud Investigations

Presented to:ACC Compliance & Ethics CommitteeJune 15, 2010

#416457

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The SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations

1. January 10, 2010, the SEC announces further changes to enforcement program

2. New changes designed to encourage early cooperation and “substantial assistance”

3. New changes designed to improve the quality, quantity, and timeliness of information and assistance

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The SEC versus The DOJ

• The SEC has civil authority

– The “Commission” or “SEC” v. “Division of Enforcement” or the “SEC staff” – not one and the same

• The DOJ has criminal authority

• The new SEC cooperation initiative essentially is an attempt to adopt the criminal prosecutor’s tool kit

– SEC Enforcement Director Robert Khuzami is a former federal prosecutor

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Four Policy Factors the SEC Will Consider in Granting Cooperation Credit to Individuals

1. Assistance provided

a. The value of the cooperation

b. The nature of the cooperation

2. Importance of the case to the SEC

3. The societal interest in ensuring the individual is held accountable for his or her misconduct

4. Individual’s history and acceptance of responsibility

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Assistance Provided

• Value of the cooperation

• Resulted in “substantial assistance” to investigation

• Timely

• Truthful, complete, and reliable

• Time and resources saved by the cooperation

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Assistance Provided

Nature of the Cooperation

1. Voluntarily provided or pursuant to agreement with another agency (e.g., the DOJ)

– Presumably, cooperation benefit with the SEC is not available if one is compelled to cooperate with the SEC pursuant to a DOJ plea agreement.

2. Type of assistance offered

3. Whether individual provide information that otherwise might not have been discovered

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Importance of the Case to the SEC

• Cooperation in investigations that involve priority matters or serious, ongoing, or widespread violations will be viewed most favorably

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Interest in Holding Individual Accountable(a counterbalancing factor)

• Severity of the conduct (type of violation, duration)

• Individual’s knowledge, education, training, experience, and position of responsibility

• Degree to which individual allowed improper conduct to occur or continue, attempts to remediate or disclose

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Profile of Individual

• History of lawfulness

• Acceptance of responsibility

• Propensity for future violations

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Cooperation Tools

Proffer Agreement (Queen-for-a-Day letters)

• Written agreements that statements made at meeting between individual and SEC staff cannot be used against individual

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Cooperation Tools

Oral Assurances

• Staff may orally inform individual or company that the Division of Enforcement does not anticipate recommending an enforcement action based upon evidence currently known to staff

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Cooperation Tools

Cooperation Agreement

• Written agreement between the Division of Enforcement and cooperating individual wherein individual agrees to provide “substantial assistance” in exchange for a recommendation of leniency (i.e., credit for cooperation and a possible specific settlement recommendation)

– Note: agreement with Division of Enforcement, not the SEC

– Deviating from standard agreement requires Office of Chief Counsel or Chief of Litigation Counsel involvement

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Cooperation Tools

Deferred Prosecution

• Written agreement between the Division of Enforcement and cooperating individual in which the SEC grants some form of amnesty in exchange for individual’s promise to cooperate and to fulfill certain reformation requirements– Under certain circumstances, the individual may agree either to admit or

not to contest underlying facts that the SEC could assert

– Cooperating individual generally remains under supervision for some period of time in exchange for ultimate dismissal of charges

– If agreement is violated during the deferred period, the SEC staff may recommend an enforcement action to the Commission

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Cooperation Tools

Non-Prosecution Agreement

• Written agreement between the Division of Enforcement and cooperating individual stating that the SEC will not pursue an enforcement action against the individual provided that the individual cooperates truthfully and fully in the SEC’s investigation and related enforcement actions

– If agreement is violated, the SEC staff retains the ability to recommend an enforcement action to the Commission

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Cooperation Tools

Termination Notice

• If the Division of Enforcement determines not to recommend to the Commission an enforcement action against a cooperating individual, staff supervisors may, and in some cases are required to, provide a letter informing the individual that the investigation has been terminated

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Cooperation Tools

Immunity Requests

• In response to an individual asserting his Fifth Amendment privilege against self-incrimination in an enforcement proceeding, the SEC staff may seek statutory immunity or letter immunity in order to

obtain the testimony and/or cooperation of that individual – Statutory Immunity: The SEC staff seeks a court order compelling the

individual to provide information as necessary to the public interest, provided the request is approved by the U.S. Attorney General

– Letter Immunity: Conferred by agreement between the individual and the U.S. Attorney’s Office

Note: Neither statutory immunity nor letter immunity precludes the SEC staff from using the information provided by the cooperating individual in its enforcement actions, including the enforcement action against the cooperating individual for whom the immunity was issued

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Questions or Comments?

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For additional Information:

Mauro M. WolfePartnerwolfem@dicksteinshapiro.com (212) 277-6726