SEC to formally invite and specifically reward cooperation for the first time
All United States Attorney's Offices have routinized the practice of cooperation and standardized their form of cooperation agreement which, following Section 5K1.1 of the Sentencing Guidelines and 18 U.S.C. § 3553(e), specifies to a degree both the benefits of cooperation and the consequences for violation of the agreement. In contrast, the Enforcement Division of the SEC has traditionally not had in place a formal practice of cooperation, with its promised benefits, much less achieved a standard form of such agreement. The former prosecutor now heading up the SEC's Enforcement Division plans to change that.
Before the AICPA National Conference on December 8, 2009, Director Robert Khuzami discussed the SEC's new “cooperation initiative.” Khuzami explained that the agency will now seek to encourage cooperation in SEC investigations through a variety of methods, including cooperation agreements, which for the first time will provide for the prospect of reduced sanctions based on the timeliness of the decision of a subject to cooperate and the value of the information he or she provides.
Current criminal practices followed around the nation typically reward not only the first witness in the door with a cooperation agreement, but often confer the same benefit on a number of others subsequently passing through the same portal. As a result of the proliferation of cooperation arrangements in any given investigation or prosecution, the Sentencing Commission reports, between September 2008 and October 2009 nearly 26% of all sentences were imposed below the Guidelines range as a result of government-sponsored departures. In contrast, Khuzami's statements indicate that his agency will offer the benefits of cooperation far more parsimoniously. News reports from the AICPA conference quoted him as warning defense attorneys that "only one client can be first" in coming to the SEC with information.
Perhaps Khuzami intended only to create a rush to the SEC's door, much as federal prosecutors often attempt artificially to precipitate haste by claiming to limit the availability of cooperation deals. And perhaps the SEC will in practice relax the first-in-time requirement, much as prosecutors have relented in the interests of pragmatism. But if the Enforcement Director is taken at his word, then practitioners have cause to consider the need for speed in their clients' decision-making in civil securities fraud investigations.
