The U.S. Securities & Exchange Commission's new program rewarding individuals for their cooperation has been "a success," said Enforcement Division head Robert Khuzami, speaking today at a securities law conference in Colorado.
Khuzami said about 25 people to date have signed agreements with the SEC, agreeing to provide inside information in exchange for reduced sanctions or no sanctions, and the number was “trending upward.”
The program has been a key component of Khuzami’s efforts to restructure the division and was formally unveiled in January.
Such deals are well-established in criminal cases, where lawyers have a good sense of how their clients will ultimately fare before a judge. But with the SEC, “We’re starting out with a blank slate,” Khuzami said. "There are no beacons available.”
Indeed, the possibility of parallel criminal charges in a securities case complicates matters for the SEC. “Lawyers say, ‘Why should I sign up with you if I have no idea what [the Justice Department] is doing...if I turn around and my client has been indicted?’” Khuzami said, drawing laughter.
“Justice is faced with the prospect of a fellow regulatory prosecutor who wants the individual signed up,” he continued. “We’ll all hopefully reach a consensus how to handle a particular situation.”
Khuzami also addressed criticism over the SEC’s standard practice of settling cases where the defendant neither admits nor denies wrongdoing. He noted that unlike in criminal cases, there is no requirement to admit guilt to settle SEC civil matters.
“It’s not particularly satisfying on a base level to enforcement lawyers and prosecutors,” he said.
Still, he pointed out that forcing an acknowledgment of guilt “would require a great deal of negotiating over what the admission would look like.”
“Our goal is to get money back in the hands of investors,” he said. If the choice was going to trial or a no admit/ no deny settlement with equivalent remedies, “I think the tradeoff is worth it.”
He added, “I don’t see a lot of confusion in the world,” when there is a detailed SEC complaint and the accused writes a big check to settle the charges. “Is there a groundswell out in the world that the individual didn’t do anything wrong? If you look at the entire package, I don’t think there’s a lot of ambiguity.”