SEC’s First-Ever Individual DPA Comes Amid Judge Rakoff’s Criticism of Tactics

The SEC’s first-ever deferred prosecution agreement with an individual underscores its commitment to relying on proactive disclosure and cooperation to identify and redress violations.  On November 12, 2013, the SEC announced the DPA with Scott Herckis, a former hedge fund administrator who cooperated extensively with the agency in taking action against Berton M. Hochfeld, a hedge fund manager who stole over $1.5 million in investor assets.  Experts say the agreement with Herckis marks an expansion of the SEC’s use of DPAs, which began in 2010 with the SEC’s Cooperation Program.  The government’s use of these cooperation tools has been staunchly criticized, however, including a negative assessment by Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York.  In a recent speech, Rakoff opined that the government’s shift in focus in redressing financial fraud from prosecuting high level individuals to prosecuting companies has led to “lax and dubious behavior on the part of prosecutors, with deleterious results.”  For more on settlement agreements, see “A Comparison and Examination of DOJ Compliance Program Requirements in FCPA Settlement Agreements,” The FCPA Report, Vol. 2, No. 19 (Sep. 26, 2013).

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