Broken Windows, Admissions and Stale Conduct: The State of Enforcement at the SEC

November 15, 2017

Kyle DeYoung discusses recent comments by top SEC enforcement officials that point to a potential shift away from previous approaches, such as “broken windows” and requiring admissions in certain cases.

Excerpts from "Broken Windows, Admissions and Stale Conduct: The State of Enforcement at the SEC,” The Anti-Corruption Report, November 15, 2017:

Cain at the FCPA Unit’s Helm: 

“I think the fact that they chose to promote him rather than look to an outside candidate does suggest that significant changes in this area are unlikely,” Kyle DeYoung, a partner at Cadwalader and previously Senior Counsel to the Director of Enforcement at the SEC, said.

The Impact of Fewer Resources:

DeYoung said that it is possible [Co-Director of the SEC’s Division of Enforcement] Peikin was “setting expectations for the industry and perhaps trying to let Capitol Hill know that the budget limitations are having a real impact on the Enforcement Division. While the SEC will continue to have an active enforcement program, it is facing serious budget constraints and certain metrics – like the total number of enforcement actions – will almost certainly go down.”

Letting Broken Windows Be:

Determining whether the SEC is going to uncover a small FCPA violation and pursue it on its own still may affect a company’s self-reporting calculation, though, DeYoung said. “Where a company identifies a potential minor regulatory violation, it may think twice about self-reporting the issue when it knows the likelihood of a sweep or other enforcement action is unlikely.” 

More Admissions?

In certain cases, the new policy may change the negotiating dynamic. Smith noted that “from a company perspective, this policy change helps from a negotiating standpoint if the [SEC] staff is insisting on admissions without a parallel criminal action.” DeYoung said also that it “may make settlement more likely in the rare instances where the SEC would have insisted on admissions as a condition of settlement in the past.”

Clarity on Cooperation Credit

DeYoung told The Anti-Corruption Report that there is room for improvement at the SEC. “I think Seaboard, and other guidance from the SEC, does an okay job of setting out what the agency’s expectations are for cooperation, but the SEC can, and should, provide more transparency about what the benefits are in return for that cooperation in specific cases. Companies that cooperate, and those that are evaluating their options, should know what they are getting for their cooperation.”

Focusing on Current Cases After Kokesh

The Supreme Court’s decision in Kokesh v. SEC that held that the SEC’s efforts to win disgorgement of money and assets in enforcement cases are subject to a five-year statute of limitations may affect what cases the SEC takes, which cases a company self-reports and how a company negotiates. “Given the complexity and international aspect of FCPA investigations, Kokesh may impact the SEC’s FCPA cases more than many of its other kinds of cases,” De Young said.