Document ID: SEC-2010-0094-0001
Agency: sec
Document Type: Rule
Title: Policy Statement Concerning Cooperation by Individuals in Its Investigations and Related Enforcement Actions
Posted Date: 2010-01-19T05:00Z

[Federal Register Volume 75, Number 11 (Tuesday, January 19, 2010)]
[Rules and Regulations]
[Pages 3122-3124]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-843]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 202

[Release No. 34-61340]

Policy Statement Concerning Cooperation by Individuals in Its 
Investigations and Related Enforcement Actions

AGENCY: Securities and Exchange Commission.

ACTION: Policy statement.

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SUMMARY: The Securities and Exchange Commission is issuing a policy 
statement announcing the analytical framework it uses to evaluate 
cooperation by individuals.

DATES: Effective Date: January 19, 2010.

FOR FURTHER INFORMATION CONTACT: Joan McKown, Chief Counsel, (202) 551-
4933; or Jordan A. Thomas, Assistant Chief Litigation Counsel, (202) 
551-4475.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission is 
issuing a policy statement announcing the analytical framework it uses 
to evaluate cooperation by individuals. This framework serves two 
important purposes: it promotes the fair and effective exercise of 
discretion by the Commission, and it enhances confidence on the part of 
the public and cooperating individuals that decisions regarding 
cooperation in the Commission's investigations and related enforcement 
actions will be made in an appropriate and consistent manner.
    The provisions of the Administrative Procedure Act (``APA''), 5 
U.S.C. 553, regarding notice of proposed rulemaking, opportunities for 
public comment, and prior publication are not applicable to general 
statements of policy, such as this policy statement. Similarly, the 
provisions of the Regulatory Flexibility Act, 5 U.S.C. 601-602, apply 
only when notice and comment are required by the APA or another statute 
and are therefore not applicable.

List of Subjects in 17 CFR Part 202

    Administrative practice and procedure.

Text of Amendment

0
For the reasons set out in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is amended as follows:

[[Page 3123]]

PART 202--INFORMAL AND OTHER PROCEDURES

    1. The authority citation for Part 202 continues to read, in part, 
as follows:

    Authority:  15 U.S.C. 77s, 77t, 77sss, 77uuu, 78d-1, 78u, 78w, 
78ll(d), 80a-37, 80a-41, 80b-9, 80b-11, 7202 and 7211 et seq., 
unless otherwise noted.
* * * * *

0
2. Add Sec.  202.12 to read as follows:

Sec.  202.12  Policy statement concerning cooperation by individuals in 
its investigations and related enforcement actions.

    Cooperation by individuals and entities in the Commission's 
investigations and related enforcement actions can contribute 
significantly to the success of the agency's mission. Cooperation can 
enhance the Commission's ability to detect violations of the federal 
securities laws, increase the effectiveness and efficiency of the 
Commission's investigations, and provide important evidence for the 
Commission's enforcement actions. There is a wide spectrum of tools 
available to the Commission and its staff for facilitating and 
rewarding cooperation by individuals, ranging from taking no 
enforcement action to pursuing reduced charges and sanctions in 
connection with enforcement actions. As with any cooperation program, 
there exists some tension between the objectives of holding individuals 
fully accountable for their misconduct and providing incentives for 
individuals to cooperate with law enforcement authorities. This policy 
statement sets forth the analytical framework employed by the 
Commission and its staff for resolving this tension in a manner that 
ensures that potential cooperation arrangements maximize the 
Commission's law enforcement interests. Although the evaluation of 
cooperation requires a case-by-case analysis of the specific 
circumstances presented, as described in greater detail below, the 
Commission's general approach is to determine whether, how much, and in 
what manner to credit cooperation by individuals by evaluating four 
considerations: the assistance provided by the cooperating individual 
in the Commission's investigation or related enforcement actions 
(``Investigation''); the importance of the underlying matter in which 
the individual cooperated; the societal interest in ensuring that the 
cooperating individual is held accountable for his or her misconduct; 
and the appropriateness of cooperation credit based upon the profile of 
the cooperating individual. In the end, the goal of the Commission's 
analysis is to protect the investing public by determining whether the 
public interest in facilitating and rewarding an individual's 
cooperation in order to advance the Commission's law enforcement 
interests justifies the credit awarded to the individual for his or her 
cooperation.
    (a) Assistance provided by the individual. The Commission assesses 
the assistance provided by the cooperating individual in the 
Investigation by considering, among other things:
    (1) The value of the individual's cooperation to the Investigation 
including, but not limited to:
    (i) Whether the individual's cooperation resulted in substantial 
assistance to the Investigation;
    (ii) The timeliness of the individual's cooperation, including 
whether the individual was first to report the misconduct to the 
Commission or to offer his or her cooperation in the Investigation, and 
whether the cooperation was provided before he or she had any knowledge 
of a pending investigation or related action;
    (iii) Whether the Investigation was initiated based on information 
or other cooperation provided by the individual;
    (iv) The quality of cooperation provided by the individual, 
including whether the cooperation was truthful, complete, and reliable; 
and
    (v) The time and resources conserved as a result of the 
individual's cooperation in the Investigation.
    (2) The nature of the individual's cooperation in the Investigation 
including, but not limited to:
    (i) Whether the individual's cooperation was voluntary or required 
by the terms of an agreement with another law enforcement or regulatory 
organization;
    (ii) The types of assistance the individual provided to the 
Commission;
    (iii) Whether the individual provided non-privileged information, 
which information was not requested by the staff or otherwise might not 
have been discovered;
    (iv) Whether the individual encouraged or authorized others to 
assist the staff who might not have otherwise participated in the 
Investigation; and
    (v) Any unique circumstances in which the individual provided the 
cooperation.
    (b) Importance of the underlying matter. The Commission assesses 
the importance of the Investigation in which the individual cooperated 
by considering, among other things:
    (1) The character of the Investigation including, but not limited 
to:
    (i) Whether the subject matter of the Investigation is a Commission 
priority;
    (ii) The type of securities violations;
    (iii) The age and duration of the misconduct;
    (iv) The number of violations; and
    (v) The isolated or repetitive nature of the violations.
    (2) The dangers to investors or others presented by the underlying 
violations involved in the Investigation including, but not limited to:
    (i) The amount of harm or potential harm caused by the underlying 
violations;
    (ii) The type of harm resulting from or threatened by the 
underlying violations; and
    (iii) The number of individuals or entities harmed.\1\
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    \1\ Cooperation in Investigations that involve priority matters 
or serious, ongoing, or widespread violations will be viewed most 
favorably.
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    (c) Interest in holding the individual accountable. The Commission 
assesses the societal interest in holding the cooperating individual 
fully accountable for his or her misconduct by considering, among other 
things:
    (1) The severity of the individual's misconduct assessed by the 
nature of the violations and in the context of the individual's 
knowledge, education, training, experience, and position of 
responsibility at the time the violations occurred;
    (2) The culpability of the individual, including, but not limited 
to, whether the individual acted with scienter, both generally and in 
relation to others who participated in the misconduct;
    (3) The degree to which the individual tolerated illegal activity 
including, but not limited to, whether he or she took steps to prevent 
the violations from occurring or continuing, such as notifying the 
Commission or other appropriate law enforcement agency of the 
misconduct or, in the case of a violation involving a business 
organization, by notifying members of management not involved in the 
misconduct, the board of directors or the equivalent body not involved 
in the misconduct, or the auditors of such business organization of the 
misconduct;
    (4) The efforts undertaken by the individual to remediate the harm 
caused by the violations including, but not limited to, whether he or 
she paid or agreed to pay disgorgement to injured investors and other 
victims or assisted these victims and the authorities in the recovery 
of the fruits and instrumentalities of the violations; and

[[Page 3124]]

    (5) The sanctions imposed on the individual by other federal or 
state authorities and industry organizations for the violations 
involved in the Investigation.
    (d) Profile of the individual. The Commission assesses whether, how 
much, and in what manner it is in the public interest to award credit 
for cooperation, in part, based upon the cooperating individual's 
personal and professional profile by considering, among other things:
    (1) The individual's history of lawfulness, including complying 
with securities laws or regulations;
    (2) The degree to which the individual has demonstrated an 
acceptance of responsibility for his or her past misconduct; and
    (3) The degree to which the individual will have an opportunity to 
commit future violations of the federal securities laws in light of his 
or her occupation--including, but not limited to, whether he or she 
serves as: A licensed individual, such as an attorney or accountant; an 
associated person of a regulated entity, such as a broker or dealer; a 
fiduciary for other individuals or entities regarding financial 
matters; an officer or director of public companies; or a member of 
senior management--together with any existing or proposed safeguards 
based upon the individual's particular circumstances.

    Note to Sec.  202.12.  Before the Commission evaluates an 
individual's cooperation, it analyzes the unique facts and 
circumstances of the case. The above principles are not listed in 
order of importance nor are they intended to be all-inclusive or to 
require a specific determination in any particular case. 
Furthermore, depending upon the facts and circumstances of each 
case, some of the principles may not be applicable or may deserve 
greater weight than others. Finally, neither this statement, nor the 
principles set forth herein creates or recognizes any legally 
enforceable rights for any person.

    Dated: January 13, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-843 Filed 1-15-10; 8:45 am]
BILLING CODE 8011-01-P