The Securities and Exchange Commission recently announced new initiatives to incentivize “insider” witnesses to cooperate in its civil enforcement matters. In unveiling the new policy, SEC Enforcement Division director and former federal prosecutor Robert S. Khuzami enthusiastically dubbed it a “potential game-changer.” The basic concept is straightforward: take a number of established techniques used by criminal prosecutors and adapt them for civil law enforcement. But the criminal prosecutor’s playbook does not translate smoothly into the civil game. There are significant cultural differences—in mission, structure, and process—between the SEC’s traditional enforcement approach and that of a typical federal prosecutor’s office. If the SEC’s new cooperation initiatives are to be successful, the SEC must resolve these differences and implement the policy in a manner that is fair and just so that individuals are truly incentivized to cooperate because the benefits of cooperation outweigh the costs.

The New Initiatives

Although the SEC has attempted to incentivize and reward cooperation by entities at least since its Seaboard Report in 2001, the announcement of a framework to analyze the cooperation of individuals is a significant development.1 Indeed, in announcing the new policy, Mr. Khuzami explained: “There is no substitute for the insiders’ view into fraud and misconduct that only cooperating witnesses can provide. That type of evidence can expand our ability to conduct our investigations more swiftly, and to act quickly to file charges, freeze assets, and protect investors.”2

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