Thursday, November 14, 2013

The SEC and Deferred Prosecution Agreements

Deferred Prosecution Agreements - where a wrongdoer agrees to cooperate with the government, and the government agrees not to prosecute the wrongdoer - are the stuff that television police shows are made of. We don't see them too often in our securities defense practice, but that may soon change.

The SEC announced the adopition of a DPA policy in 2010 as part of a series of initiatives designed to encourage individuals to cooperate and assist in investigations. The agreements are 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. We have a sample SEC DPA at

However, it was not until over a year later, in May 2011 that the SEC entered into a DPA, and in that instance, the DPA was with a corporation. The corporation discovered FCPA violations in its foreign offices, notified authorities, agreed to cooperate with the SEC and federal prosecutors and to pay $5.4 million in disgorgement and prejudgment interest. (The company also agreed, in a separate agreement with prosecutors, to pay $3.5 million in criminal penalties). The SEC's press release regarding the case is at the SEC web site.

On November 12, 2013 the SEC announced its first deferred prosecution agreement with an individual. According to the SEC, a former hedge fund admi13nistrator who helped the agency take action against a hedge fund manager who stole investor assets.

While deferred prosecution agreements are designed to encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings, it does not seem to be a very popular option, with only two such agreements in over 2 years.

For more information - SEC Announces First Deferred Prosecution Agreement With Individual