SEC Investigations 101: Cooperation?

January 2, 2019

This post is the fourth in a series of posts for non-lawyers, or non-securities lawyers, who might suddenly find themselves on the wrong end of a Securities and Exchange Commission document request, subpoena or call from Enforcement division staff.

By Dan Portnov SEC HQ front.jpg

Thanks to the ongoing Special Counsel investigation, we have been inundated with high profile examples of how cooperation works in criminal investigations, how it doesn’t work and how it can seemingly blow up. Even the President has weighed in on cooperation, saying that it “almost ought to be illegal.” Nevertheless, cooperators are vital for law enforcement to do its job.

(And, no, there’s nothing “illegal” about it.)

Just as federal prosecutors rely on cooperators to prove up their cases in exchange for recommendations of leniency at sentencing, so does the SEC incentivize cooperation by individuals and companies in its investigations. But what exactly does cooperation mean in the SEC context? And how should an individual make the decision to cooperate with the SEC?

Compared to DOJ, the SEC’s cooperation initiative for individuals is of recent vintage. Following its 2001 Seaboard Report, which laid out thirteen factors across four “broad measures”[1] in evaluating a company’s cooperation, another nine years passed before the Commission issued a policy statement in 2010 with similar criteria for individuals seeking the benefits of cooperation. These are:

  1. Assistance provided by the cooperator.
  2. Importance of the underlying matter.
  3. Interest in holding the individual accountable.
  4. Profile of the individual.

SEC Enforcement Manual §6.1.1 (setting out the many sub-parts to each factor).

As an initial matter, the Enforcement staff first begins to consider an individual’s potential for cooperation though a proffer given by that individual, pursuant to a proffer agreement.[2] (Your counsel may first give an attorney proffer, but you will still have to sit down with the staff before you may secure a cooperation agreement.)

Since 2010, the number of publicized agreements with individual cooperators is fairly low: approximately 20 or so. Many agreements never see the light of day as the Enforcement staff (like DOJ) does not publicize decisions not to charge an individual. In some cases, the only evidence of a cooperator’s existence may be found buried in the press release announcing settlement or a litigation victory against another entity. Thus, an individual’s decision to cooperate must be guided equally by anecdotal data gleaned from announced agreements and the instinct of an experienced securities enforcement attorney.

Making the Decision to Cooperate

When it comes time to weigh the decision to cooperate, the calculus for the individual looks a bit different from the SEC’s:

Culpability and Responsibility

The first step is an honest assessment of where you might fit within the alleged misconduct. Are you one of the wrongdoers or just a witness to the misconduct? If the former, is this the type of violation, like insider trading, where you would be liable for the sum total of ill-gotten gains by your compatriots? If you are part of an organization, did you give the instruction to engage in misconduct, induce others, or just follow along? No matter your answer to the preceding questions, there may be a case made for cooperation.

In one insider-trading enforcement action, the difference between cooperation and administrative litigation was clearly on display.  In that case, one cooperator provided unconditional and “extraordinary” cooperation plus the disgorgement of his trading profits. Meanwhile, the tipper, who resisted the investigation, ultimately settled for a penalty of triple the cumulative trading profit of himself and his tippees.


Self-reporting is not just for companies. To the Enforcement Division, voluntary reporting before an investigation has commenced is one factor in the “Assistance Provided…” category, and this alone has benefit to an individual seeking cooperation credit. Being the first to report also ensures the value of the information you might provide. Finally, even culpable individuals who report larger or company misconduct may be eligible to collect whistleblower awards. As a former SEC Director of Enforcement stated:

[W]hile there are safeguards built into the program to ensure that whistleblowers do not profit from their own misconduct, including where they substantially directed, planned or initiated the misconduct of an entity, or conduct for which they are criminally convicted, culpable whistleblowers can still get paid for eligible information they report that falls outside of these limitations. In these other cases, while culpability is a factor that is considered when determining the award percentage, any whistleblower who qualifies for an award under our rules, including a culpable one, will receive at least 10% . . . of the monetary sanctions collected in the enforcement action.

Andrew Ceresney Speech to the Sixteenth Annual Taxpayers Against Fraud Conference, Washington, D.C., Sept. 14, 2016.

Can You Offer “Substantial Assistance”?

As I wrote in my previous post, compliance with an SEC investigation does not equal “cooperation.” Many lawyers will extol their client’s desire to cooperate with an investigation by producing documents on a rolling basis, offering an attorney proffer and making available their client for testimony – and then be disappointed when charges are still recommended. The SEC expects compliance with its subpoenas for documents and testimony, and has the ability to enforce both. True cooperation requires substantially shortening the Commission’s investigation as well taking full responsibility for your role and, if applicable, disgorging 100% of your proceeds from the alleged misconduct.

Providing “substantial assistance” may involve significant time and effort through giving testimony, documents and being available for related Enforcement or other regulatory actions. The corresponding expenses – legal representation, travel and missed work – may not reach the levels of a contested litigation, but they won’t be negligible. Finally, full cooperation may involve admissions of liability that may impact civil lawsuits.

Different Types of Agreements

So far I have written broadly of “cooperation” agreements without noting that the Commission also utilizes Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) with individuals in appropriate circumstances.[3] The differences and uses of NPAs and DPAs deserve their own blog post but for now it suffices to say that:

  • the individual’s decision to cooperate and seek any kind of agreement is generally evaluated by the factors in 6.1.1 of the Enforcement Manual and the proffer (§3.3.7) is a pre-requisite for each; and
  • individual DPAs are always public while NPAs typically do not disclose the identity of the recipient.

A Final Thought

As evidenced by the above examples and links, the SEC Enforcement Division makes great effort to encourage cooperation with its focus on the benefits to otherwise culpable cooperators. However, cooperators remain the minority of investigated entities.[4] Indeed, cooperation is not for everyone and the burden remains on the Enforcement staff to prove every element of every charge it brings.

In our next SEC 101 installment, we will discuss the process and preparation for giving testimony as part of an SEC investigation.


[1] Self-policing, self-reporting, remediation, and cooperation with law enforcement.

[2] SEC Enforcement Manual §3.3.7.

[3] §§ 6.2.1, 6.2.2 and 6.2.3 of the SEC Enforcement Manual.

[4] The Enforcement Division annual reports do not provide data regarding cooperation agreements.

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