“Tone” of SEC Probe Can May Be Affected by Self-Reporting, Says Enforcement Division Official

According to Securities and Exchange Commission Stephen Cohen, when an entity self-reports possible wrongdoing, the “tone” of the SEC investigation into the matter may be impacted in a manner that benefits that party. Cohen, who spoke while participating at a Securities Docket’s Securities Enforcement Forum panel in DC last month (he made it clear that his views are his own), said that this is very important to the SEC when figuring out how much of a penalty to impose.

Cohen noted that although in the past the SEC hasn’t done a stellar job about making public what credits are given to the entities that have self-reported violations, he says the regulator has been doing a better job. For example, in 2010 the Commission announced that it had entered into a non-prosecution deal with Carter’s Inc. (CRI) after the kids’ clothing marketing company did a thorough job of self-reporting the insider trading and financial fraud incidents involving its ex-EVP of Sales Joseph M. Elles. Carter’s also implemented complete remedial action and thoroughly cooperated with the SEC’s probe.

There was also the deferred prosecution of Tenaris S.A. (TN) last year over allegations that the steel pipe products manufacturer bribed Uzbekistan officials during a bidding process over supplying pipeline and made nearly $5 million in profits. Such misconduct is a violation of the Foreign Corrupt Practices Act and Tenaris agreed to pay $5.4 million in disgorgement in addition to prejudgment interest.

The Deferred Prosecution Agreement is being used by the SEC to facilitate and reward those that cooperate in Commission probes. Cooperation generally involves giving the agency information about the misconduct and working with the agency during the investigation. The regulator says that not only did Tenaris conduct a global, complete internal assessment of its controls and operations but also it was the one that found out about the FCBA violations by its employees and notified the SEC. Following its self-discovery, Tenaris also took a closer look at compliance and control measures and made significant modifications to its anti-corruption policies and practices. It also consented to pay a $3.5 million criminal penalty as part of a Non-Prosecution Agreement that it reached with the US Justice Department.

Cohen acknowledged that not every act merits reporting. He also said that if possible violations are found out before an entity is able to self-report, that party may still be able to get credit if it demonstrates that the problem was under serious investigation or steps are taken to fix the matter.

Additionally, in 2010 the SEC had identified four general considerations for determining how to credit individuals that cooperate with Commission probes, including the assistance provided, the relevance of the matter in which cooperation occurred, how important it is for society that the individual is made accountable for the misconduct, and, depending on the cooperating person’s risk profile, whether or not it is appropriate to provide credit.

Throughout the US, our securities fraud attorneys represent institutional and individual investors. Contact the institutional investment fraud law firm of Shepherd Smith Edwards Kantas, LTD, LLP today.

Deferred Prosecution Agreement, SEC (PDF)

Foreign Corrupt Practices Act, US Department of Justice

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