United States: The SEC's First Deferred Prosecution Agreement Involving An Individual: Questions Remain

With much fanfare three years ago, the Securities and Exchange Commission ("SEC") announced a Cooperation Initiative as part of an overall effort to strengthen its enforcement program. Modeled on the 2001 "Seaboard Report," the Cooperation Initiative sought to encourage potentially culpable individuals to cooperate in SEC investigations in exchange for more lenient treatment by the agency. While offering cooperation agreements to a number of individuals, the agency only recently entered its first individual deferred prosecution agreement ("DPA"). The advantage of a DPA is the prospect of avoiding a formal SEC enforcement action altogether, rather than simply mitigating the charges and penalties in return for cooperation. Under the terms of the DPA, hedge fund manager Scott Herckis agreed to make certain admissions, including admitting to transferring money from a hedge fund to accounts owned and controlled by the general partner of the fund, and materially overstating the fund's monthly account statements and rates of returns.1

When the SEC first announced its individual Cooperation Initiative, it touted the initiative as a "game-changer" for its enforcement efforts, capitalizing on the "insiders' view into fraud and misconduct."2 The initiative offers an incentive to those with unclean hands to be proactive, report violations, and offer assistance to the SEC as it pursues those violations. In determining whether and to what extent it should credit an individual's cooperation, the SEC will consider: (i) the assistance provided by the individual; (ii) the importance of the underlying matter; (iii) society's interest in ensuring the cooperating individual is held accountable for misconduct; and (iv) whether cooperation credit is appropriate based on the individual's risk profile (for example, whether he or she is a first-time offender).3

While the Herckis DPA is the first between the SEC and an individual, the SEC reached DPAs in two prior instances with corporate entities that were also required to admit to wrongdoing. In 2011, global manufacturer Tenaris admitted to bribing Uzbekistan officials for government contracts.4 After an internal investigation, Tenaris reported its violations to the SEC, and it agreed to cooperate with both the SEC and the Department of Justice in further investigations or proceedings. Tenaris also paid civil and criminal penalties and enhanced its internal compliance controls and policies. The SEC entered its second DPA in 2012 with Amish Helping Fund ("AHF"), a nonprofit organization that offers securities to fund home loans to Amish families.5 AHF admitted that its offering memorandum was not kept up to date and contained material misrepresentations about both AHF and the securities it offered. Unlike Tenaris, AHF did not self-report, though it immediately cooperated with the SEC and took certain remedial steps.

Although DPAs are legally different from a traditional SEC enforcement action, which typically culminates in a court injunction or administrative cease-and-desist order against future violations, the Herckis DPA suggests there can be little if any practical difference in terms of sanctions and the burden on the respondent. In addition to offering full cooperation with any investigation or other proceeding initiated by the SEC and paying more than $50,000, Herckis agreed, by contract rather than by order of the SEC or a district court, to refrain from certain activities for five years, including: (i) associating with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; (ii) serving or acting as an employee, officer, director, member of an advisory board, investment adviser, or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; and (iii) serving or acting as, or providing services to, any hedge fund or registered investment company.

Although Herckis was able to avoid the collateral consequences that can be triggered by an injunction or administrative order, it is otherwise difficult to discern how this DPA is substantively different from a traditional SEC enforcement action. As described above, in terms of sanctions and remedies, this may be a distinction without a substantial difference. In addition, like Tenaris and AHF, Herckis was obliged to admit the SEC's "findings" outlined in his DPA—including those detailing his involvement in fraudulent activity. These admissions can possibly be used against him by other governmental law enforcement agencies and private litigants. The SEC has indicated that, in contrast to its prior "no admit/no deny" policy, it will continue to seek these types of admissions—which have been required in all DPAs to date—in appropriate cases as it pursues its enforcement agenda.6

Another remaining question is what DPA-mandated cooperation will mean for individuals like Herckis. The Herckis DPA suggests that he is required to respond "fully and truthfully" to any inquiry—including those conducted by other law enforcement agencies—at the SEC's instruction. He must testify at trials or other judicial proceedings if so directed by the SEC. In short, it appears that Herckis may be deemed to have forfeited his Fifth Amendment privilege against self-incrimination regarding any ongoing or subsequent criminal investigation related to the subject of the DPA.

Notwithstanding the uncertainties raised by the SEC's limited use of DPAs to date and its overly general guidance on this subject, certain individuals and entities may find DPAs and other cooperation-oriented enforcement tools to be their best option. For example, individuals and entities in certain regulated industries, or those who engage in significant government procurement work, may find DPAs—even with their flaws and ambiguities—preferable to traditional SEC enforcement actions that can trigger detrimental collateral consequences, such as government contractor debarment proceedings. It is critical that any individual or entity considering cooperation weigh both the benefits and risks of cooperation before deciding how to proceed.  

Jones Day will continue to monitor developments regarding the SEC's implementation of its Cooperation Initiative.

Lynsey Barron, an associate in the Atlanta Office, assisted in the preparation of this Commentary.


1.Press Release, Securities and Exchange Commission, "SEC Announces First Deferred Prosecution Agreement With Individual" (Nov. 12, 2013).

2.Press Release, Securities and Exchange Commission, "SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations" (Jan. 13, 2010).


4.Press Release, Securities and Exchange Commission, "Tenaris to Pay $5.4 Million in SEC's First-Ever Deferred Prosecution Agreement" (May 17, 2011).

5.Press Release, Securities and Exchange Commission, "SEC Announces Deferred Prosecution Agreement with Amish Fund" (July 18, 2012).

6.See, e.g., Mary Jo White, Chair, Securities and Exchange Commission, 5th Annual Judge Thomas A. Flannery Lecture, "The Importance of Trials to the Law and Public Accountability" (Nov. 14, 2013) (explaining why the SEC revisited its "no admit/no deny" policy, and noting her belief that "a public acknowledgment of the unlawful conduct" is "necessary to ... ensure greater public accountability"); see also Alison Frankel, "SEC Enforcement co-director: We're bringing 'swagger' back" (Oct. 1, 2013), http://blogs.reuters.com/alison-frankel/2013/10/01/sec-enforcement-co-director-were-bringingswagger-back/ (citing SEC Co-Director of Enforcement Andrew Ceresney's comments on the agency's use of deferred prosecution agreements to require admissions when "'public airing of unambiguous facts serves an important public interest'").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.