43rd Annual Rocky Mountain Securities Conference Coverage: The Defense Response: Initiatives, Cooperation and Other Expansive Enforcement Concepts

The Enforcement Panel included Randall Fons of Morrison & Foerster, LLP; David Zisser of Davis Graham & Stubbs LLP; Mike Cillo of Daivs & Ceriani PC; and Holly Sollod of Holland & Hart LLP. This panel offered the opposite viewpoint on the topic of enforcement from the perspective of defense counsel.  The panel focused on the issue cooperation with the SEC.

The SEC uses several tools when cooperating with defendants; such as cooperation agreements, non-prosecution agreements, and expedited immunity used in conjunction with the Department of Justice. Notably, panelist Holly Sollod had a case in which a cooperation agreement was used during litigation in the middle of an active enforcement action with her client. This is unusual as such agreements tend to happen at an earlier stage.

The important aspects a defense attorney must be mindful of include: the level of assistance provided, the truth of the information, and whether the client was the first to come to them with the information; the importance of the underlying issue; the harm involved and whether the client is a repeat; the societal implications of holding somebody responsible and what the public response might be; and an evaluation of the client that may be cooperating, particularly exploring their reputation and their opportunity to commit further violations. The most important factor is how early an individual attempts to cooperate. The SEC favors agreements with those that come to them first with particular information, thus encouraging more immediate cooperation. In the instance of Ms. Sollod’s case, she was able to obtain such an agreement because, despite the fact that the action had already been initiated, her client was the first to offer cooperation.

The panelists also voiced criticism over this cooperation process, particularly the lack of transparency into entering cooperation agreements.  It is difficult to recommend cooperation to a client when there is no standard for the degree of cooperation or the standard protections that come along with them, or the manner in which the SEC and the Justice Department treat those that come forward with information to make a cooperation agreement.  The mechanics, protections, and assurances are not yet solidified enough to cause broad acceptance and reliance on such agreements. It is essential that any protection in an agreement last indefinitely and not just for the period of time that the information is being shared, otherwise the witness may find testimony being used against him or her in the future.

Finally the perspective of defending corporations was discussed, particularly in the face of the encouragement of whistleblowers. It is essential that corporations install open communication for whistleblowers which allows the company to get ahead of any allegations, make people feel comfortable in coming to the company before going to the SEC, thereby enabling the corporation to launch its own internal investigations. Once a whistleblower brings information to the attention of the company, the company has 90 days to react reasonably; not doing so will open the company up to SEC sanctions. In addition, the whistleblower is considered to have brought the matter to the SEC when he or she brings it to the company for timing purposes. The SEC’s emphasis is for the company to respond quickly and appropriately so that further enforcement and investigation effort is not needed.  

According to the panel, corporations are at a significant disadvantage when targeted by the SEC because the SEC can investigate for an indefinite amount of time. This allows the SEC to wait to file a case until all the relevant material is together, whereas if the company gets a tip about wrongdoing, they have only 90 days to correct transgressions, build a defense, and possibly set up a cooperation agreement.