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SEC Declines to Take Enforcement Action Based on Executive's 'Substantial Cooperation'

Bruce Carton | March 23, 2012

This week, the SEC announced that it had credited the "substantial cooperation" of a former AXA Rosenberg senior executive during a recent investigation by the agency that led to settled enforcement actions last year against AXA Rosenberg Group LLC and Barr M. Rosenberg. The SEC noted that this credit was part of the "Cooperation Initiative" it introduced in January 2010, and that it was issuing the release this week to provide guidance regarding the circumstances under which individuals may receive cooperation credit. The case marked the SEC's first public announcement of cooperation credit awarded to an individual.

Based on the executive's cooperation, the SEC declined to take enforcement action against him. The SEC pointed to four specific factors in its Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions in awarding the credit:

  • Assistance Provided – The senior executive's assistance was "substantial" and unconditional, and proved valuable because of its timeliness and quality. The SEC said the executive was forthcoming and provided truthful, complete, and reliable information in meetings with the staff.
  • Importance of the Underlying Matter – The enforcement action was the first ever arising from errors in a quantitative investment model, and allowed the SEC to return clients all of their $217 million in losses, and to impose additional penalties totaling $27.5 million. 
  • Interest in Holding the Senior Executive Accountable The executive played a limited role in the alleged misconduct. 
  • The Senior Executive's Profile – The SEC said the executive is not an associated person of any regulated entity, a fiduciary for other individuals or entities regarding financial matters, or an officer or director of a public company. He also did not have any disciplinary or regulatory history and had already retired from the investment advisory industry.. As such, the executive "is no longer in a position to commit future violations of the federal securities laws."

In a separate statement, SEC Enforcement Director Rob Khuzami said that the SEC's decision in the AXA Rosenberg case "demonstrates that the Enforcement Division fully recognizes the value of cooperation in SEC investigations, and will seek to reward such cooperation appropriately."

It remains to be seen how often the SEC will be in a position to award cooperation credit in this way. The facts in this week's case (a high-stakes, first-of-its-kind case, with a cooperator with a clean record and who had already retired from the industry, etc.) were perfectly set up for cooperation credit. Future cases will hopefully help show the full spectrum of circumstances in which the SEC is willing to provide cooperation credit.