How to Cooperate During SEC Investigations | SEC Releases
SEC Releases
Introduction
On May 23rd, SEC Director, Division of Enforcement, Gurbir Grewal, spoke at the Securities Enforcement Forum West about the importance of cooperation with the SEC during examinations.
SEC officials have spoken previously about the effects of self-reporting and cooperation on penalties levied, and this talk provides actionable content as to what is considered proper cooperation.
Why Cooperate?
- Cooperation can affect what charges are chosen by the Division, and the remedies required.
- The Division may recommend reduced charges or decline to recommend any charges at all.
- The Division may recommend reduced or possibly zero civil penalties.
- Proactive “real remediation” can impact if any undertakings will occur.
- Investigations can run more efficiently by limiting the amount of resources required from both the investigators and ultimately the Firms being investigated.
- The SEC is confident that between its whistleblowers, use of data analytics, and use of risk-based investigations that it isn’t a matter of if violations are discovered but of when.
The Principles of Cooperation
- Self-Policing
- Does leadership create a culture of compliance?
- Has the firm invested the required resources for compliance?
- Is compliance performed on-the-fly? Or is there an effort to maintain awareness of, and remain compliant with, industry standards?
- Self-Reporting
- Reporting known violations or even possible violations indicates effective self-policing.
- Self-reporting is a strong demonstration of one’s culture of compliance.
- A sense of credibility can start that may be useful if further concerns are discovered.
- Failure to self-report loses the possible benefits already discussed and can cast a negative light on the Firm’s compliance and supervisory programs.
- Remediation
- Effective remediation can help build a case for a cooperation credit.
- Remediation’s can take the form of:
- Disciplining or dismissing violators.
- Strengthening policies, procedures, and internal controls.
- Conducting Training on the relevant violations.
- Hiring external, reputable compliance professionals.
- Repaying harmed investors
- Recovery or claw back of executive compensations.
- Remediation must be timely.
- Strong remediation efforts, even if there was no-self reporting, can still count for some cooperation credit.
- Cooperation
- Going above and beyond the legal requirements.
- Document requests
- Discussing with enforcement teams after a request to ensure that the documents that provide truly relevant information are being provided.
- Working with enforcement to help them easily process your documentation, especially if there is a significant volume.
- Alert enforcement if relevant evidence is not being captured by the requests.
- Flag and provide further discussion for “hot documents” and offer to provide translation for languages other than English.
- Help enforcement gain access to relevant witnesses that may be difficult due to geography or frequent travel.
- Provide any evidence discovered during internal investigations.
- Collaboration
- Maintain clear and professional communication.
- Communications that are relevant, fact-based, and transparent build credibility with enforcement conducting their investigation.
- Gamesmanship and dilatory tactics will only cause greater regulatory headaches in the future.
Vigilant’s Conclusion
Vigilant provides excellent resources for Firms who may be in need of assistance during an SEC Examination.
Mock SEC Examinations are a great way to discover how prepared your Firm is if the SEC is investigating. A Gap Analysis of your policies and procedures can help identify suboptimal compliance processes and put you on the path towards proactive compliance.
Reach out to us today regarding any questions or concerns you may have.