Questions Linger Over Cooperation in SEC Cases: Attorney

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By Michael Greene

March 23 — Six years after it was announced, there still is a lack of clarity in the Securities and Exchange Commission enforcement program's cooperation initiative, an attorney said March 23.

One unanswered question is what is the impact of importing such incentives into the SEC's regime, which doesn't have the same disclosure requirements of criminal cases, Eugene Ingoglia, a New York-based partner at Morvillo LLP, said at a Practising Law Institute webcast.

In the criminal context, there are some built-in disclosure protections but it isn't clear that individuals are entitled to the same kind of disclosures in SEC litigation, Ingoglia said. He added that one scenario this issue could arise is whether a defendant could require the disclosure of information used in reverse proffers, such as a power point presentation prepared by SEC staff in order to get a witness to cooperate.

Other questions include what effect cooperation will have on other actions and whether cooperation will result in a deferred prosecution or non-prosecution agreement, he said.

Fostering Cooperation

In 2010, the Enforcement Division announced new tools designed to “foster” cooperation by individuals and companies in SEC investigations and enforcement actions .

Over 108 SEC cases have involved some form of cooperation since the initiative's implementation, according to materials included in the webcast.

Ingoglia said the initiative's impact on the SEC's ability to investigate and bring cases has been “pretty positive.”

He also noted that although many SEC NPAs and DPAs resemble settlements in which defendants are required to take remedial measures and pay penalties and disgorgement, most companies still see them as valuable in matters such as positive shareholder perception.

Individual Culpability

In other remarks, Ingoglia said that a recent Justice Department memorandum directing federal prosecutors to focus on individual accountability is consistent with the SEC's focus on individual liability .

He added that companies can expect pressure from the SEC to assess individual culpability at early stages of the commission's investigations, which may cause tension between the company and individual involved.

The company may feel bound to act the way it perceives the SEC wants it to act with respect to the individuals who are being investigated, so that may mean, for example, not sharing certain information and documents with the individual's counsel, Ingoglia said. That puts counsel for the individuals in a very difficult position of trying to make quick assessments with respect to their clients with sometimes no, or limited, access to the underlying facts, he said.

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