Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News April 2, 2012 Issue

SEC Cooperation Initiative Produces Results

In a highly publicized move, the SEC has given an individual credit for cooperating with an SEC investigation – credit that directly contributed the avoidance of charges against the individual.

The SEC’s Cooperation Initiative was launched by the Division of Enforcement back in January 2010. "This Cooperation Initiative recognizes that the first-hand evidence of wrongdoing possessed by cooperators can significantly enhance the Commission’s ability to stop fraud, security strong settlement and trial outcomes and return funds to harmed investors," said Enforcement director Robert Khuzami.

A senior executive with advisory firm AXA Rosenberg provided early, substantial assistance and facilitated the investigation of a complex and high priority case, said Khuzami. The cooperation contributed to the charging and settlement of two enforcement actions that returned $217 million to victims and imposed additional penalties totaling $27.5 million.

The SEC credited the cooperation by declining to take enforcement action against the individual, said a litigation press release on the matter. Following guidelines in its "Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions," the SEC found that the cooperating executive warranted more favorable treatment based on criteria in four categories:

Assistance provided.

Specifically, the SEC found that the senior executive provided valuable cooperation in its timeliness and quality, that the assistance permitted the SEC to conserve investigative resources, and that the senior executive acted without conditions.

"By doing so, he enhanced his credibility by showing that he had not been promised any specific outcome in exchange for his truthful testimony," said the release.

Importance of the Underlying Matter.

The investigation involved a priority area for the Division of Enforcement – quantitative investment models and the compliance policies and procedures for these models. The resulting enforcement actions were the first ever brought in this space, and "fully" addressed the harm caused. Investors were made whole on their losses and the SEC imposed additional penalties that totaled $27.5 million.

Interest in holding the senior executive accountable.

The senior executive played a limited role in the events surrounding concealment of a coding error, said the SEC, but he advocated along the way that the CEO should be informed. Further, the senior executive’s cooperation maximized SEC interests by facilitating quick and successful resolution of the resulting enforcement actions against the adviser, AXA Rosenberg, and its principal, Barr Rosenberg.

The senior executive’s "profile."

The senior executive had a clean disciplinary and regulatory history. He resigned his positions with the adviser and its related entities, and retired from the adviser industry. He is not associated with any regulated entity, he is not a fiduciary for others in financial matters, and he is not an officer or director in any public company. "Taking all these factors together, the senior executive is no longer in a position to commit future violations of the federal securities laws," said the litigation release.

The SEC noted that its assessment of and response to the individual’s cooperation was based on the unique facts and circumstances of the case.

The Investment Adviser Association observed that "this new announcement provides the first public evidence of the specific benefit of individual cooperation with the SEC s part of an enforcement matter."