Thursday, January 14, 2010

New SEC Rules - Commentary

The SEC has instituted a new initiative to provide for greater cooperation in hopes of encouraging individuals to assist in bringing to light improper activities. (see SEC Press Release)  And cooperators may obtain a benefit of immunity in return for their cooperation (see Marketplace here).  The framework for this cooperation can be found here.  Some concerns  -

  • What if you are the last person in the chain and there is no one left to offer cooperation against - is it fair for cooperation to be a race to the SEC office?   Will individuals with more resources be the ones to receive the most benefits, while poorer folks are left to suffer the consequences of others cooperating?
  •  It is clear that the SEC gives itself enormous discretion in deciding the value of the individual's cooperation.  The four factors listed as the outline for determining "whether, how much, and in what manner to credit cooperation by individuals" sound wonderful, but the outline is clearly subject to many different interpretations.  For example, will everyone be in agreement as to "[w]hether the individual's cooperation resulted in substantial assistance to the Investigation?" Also, the SEC will be determining if the person acted with scienter.  Will those who could suffer consequences of an SEC action agree with the determination that is made?
  • And what if the individual disagrees with the level of cooperation determined by the SEC, is there any place to obtain review?  The rules explicitly state that it does not "create[] or recognize[] any legally enforceable rights for any person."
  • Does this really go beyond the powers that the SEC presently has now?  If cooperation is offered, couldn't they now decide not proceed against someone?  Is this new initiative offered for a symbolic purpose?
  • If there is a real incentive offered will it result in the possibility of misinformation being relayed to the SEC by those who desire to obtain immunity.  How will the SEC handle cooperators who lie to save themselves from the consequences that they can face for their illegal activities?
  • Until such time as a neutral third party enters this picture to evaluate the cooperation, it certainly seems like this "new"  approach is vague and perhaps just more of the same. 
  • The real question is not whether the SEC will receive information on improprieties, but rather will they do something about it when the information is received. Would this situation have brought the Madoff case to light sooner, or was Madoff brought to their attention but they failed to follow up.

For more commentary on other aspects of the SEC announcement, like the use of deferred prosecution agreements, see  Mike Koehler, FCPA Blog, Game-Changing" Day at the SEC

(esp)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2010/01/new-sec-rules.html

Deferred Prosecution Agreements, SEC, Securities | Permalink

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