On Dec. 20, 2010, the Securities and Exchange Commission announced that it had entered into its first non-prosecution agreement. The SEC entered into the non-prosecution agreement with Carter’s Inc., an Atlanta-based clothing marketer, in connection with the SEC’s enforcement action against a former executive of Carter’s based on allegations of financial fraud and insider trading.
Non-prosecution agreements are an element of the SEC’s initiative announced in January 2010 to encourage individuals and companies to cooperate with SEC investigations as part of a broader effort to strengthen the SEC’s enforcement program. In announcing the initiative, the SEC stated that it had authorized the SEC staff to enter into deferred prosecution and non-prosecution agreements, which are formal written agreements in which the SEC would agree to forgo or not to pursue an enforcement action, respectively, against an individual or company who agreed to cooperate fully and truthfully in a SEC investigation and comply with express undertakings. Such deferred prosecution and non-prosecution agreements long have been a staple of criminal prosecutions by the Department of Justice, but had not been used in the SEC’s civil enforcement program.
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