Should I Cooperate With the SEC?

Should I Cooperate With the SEC?

You’re reading this at 2am because you just got served with an SEC subpoena, or an investigator left a message, or your compliance officer walked into your office looking like someone died. And the question burning in your mind is simple: should I cooperate?

Welcome to Spodek Law Group. Our goal is to give you real information about SEC cooperation – not the sanitized version you find on other websites. What we’re about to tell you is uncomfortable. Its also the truth that nobody wants to say out loud because it makes the whole system look like a trap. Because it is.

Here’s what everyone misses: “should I cooperate with the SEC” is the wrong question entirely. It assumes you’re making a choice between two clear paths – cooperation that might help you, or resistance that might make them come after you harder. But that’s not actually the choice you’re facing. The real question is something nobody wants to ask: what exactly am I cooperating INTO? That question changes everything about how you approach this situation.

The Question You’re Actually Asking

Every other website gives you the same framework. They tell you cooperation can reduce penalties. They cite the Seaboard Report from 2001. They mention the SEC’s cooperation program with its 103 agreements since 2010, its 6 non-prosecution agreements, its 9 deferred prosecution agreements. They make it sound like theres a formula – cooperate properly, get credit, move on with your life.

Heres the thing. That framing is dangerious because it treats the SEC investigation as the only investigation happening. It treats your testimony as civil testimony that stays in the civil context. It treats the question as a negotiation over penalty amounts. None of those assumptions might be true in your case – and you wont know until its to late to change course.

Todd Spodek has handled hundreds of these situations over his career, and he tells every client the same thing before they make any decisions: before you decide weather to cooperate, you need to understand what cooperation actualy means in practice. Not the press release version. Not the version where everyone gets credit and moves on. The version where your civil cooperation becomes criminal evidence that prosecutors use against you at trial.

The SEC investigation might already BE a criminal investigation. You just dont know it yet. And every word you say in your testimony, every document you produce “voluntarily,” every email you turn over to demonstrate good faith – all of it can end up in the hands of federal prosecutors who are building a case against you right now, at this very moment, while your sitting there thinking about cooperation credit. This isnt paranoia. This isnt worst-case-scenario thinking. Its how the system actualy works when you look behind the curtain.

Think about your situation right now. Your probably scared. Your probably confused. Your probably getting advice from multiple people who all seem to have differant opinions about what you should do. Some say cooperate fully. Some say invoke your rights. Some say wait and see. None of them are telling you the most important thing: the choice your making might not be the choice you think your making.

The Form They Hand You Before You Testify

Before the SEC takes your testimony, they hand you a document called Form 1662. Most people barely read it. They’re nervous, thier lawyer is sitting next to them, the investigators are waiting across the table. They glance at the form, sign it because they’re told to sign it, and start answering questions thinking they’re being cooperative.

That form contains the most important sentence you will ever read in a goverment investigation: “Information you give may be used against you in any federal, state, local or foreign criminal proceeding.”

Read that again. Information you give may be used against you in a criminal proceeding.

OK so heres were it gets truly problematic in ways most people dont anticipate. The Ninth Circuit Court of Appeals ruled in United States v. Stringer that when you testify after reading Form 1662, you have effectively waived your Fifth Amendment rights against self-incrimination. The form warns you explicitly. You proceed anyway. The court says thats a waiver. Thats the law in the Ninth Circuit, and other circuits have followed similar reasoning.

Think about what this means for your situation. The SEC hands you a piece of paper that basicly says “anything you say can be used to prosecute you criminally.” You sign it because you want to cooperate, because your lawyer told you cooperation matters, because you beleive showing good faith will help your case. You testify for hours because your trying to demonstrate that your being helpful, that your not hiding anything. And then, if criminal charges come later – which happens in 27% of SEC cases – the prosecution uses your own words against you. And you cant claim you didnt know the risk. You were warned. You signed the form. You waived your rights.

This is why Spodek Law Group exists – to get involved before you walk into this trap. Not after you’ve already testified. Not after you’ve already produced documents. Not after you’ve already waived rights you didnt fully understand you had. Once you’ve testified, theres no taking it back. No do-overs. No claiming you didnt mean what you said.

The form dosent tell you wheather a criminal investigation already exists. The SEC isnt required to disclose that information to you. It dosent tell you if DOJ prosecutors are watching your case, reading transcripts of your testimony, building a prosecution based on your cooperative answers. The form just warns you that your testimony can be used criminally – and by the time you finish testifying, you’ve potentially handed prosecutors everything they need to convict you.

What They Don’t Tell You Is Already Happening

Heres something that should make you extremly uncomfortable as you sit there considering your options: the SEC dosent have to tell you if theres a parallel criminal investigation. Theres no rule requiring disclosure. Theres no obligation of candor on their part. They can sit across the table from you, take your testimony, collect your documents, nod sympatheticly while you explain your side of the story – and the entire time DOJ can be building a prosecution based on what your giving them.

Research shows that aproximately 27% of SEC enforcement actions involve a criminal component. Thats more then 1 in 4 cases. More then one quarter of everyone who faces an SEC investigation also faces criminal exposure. Think about those odds for a moment. Your sitting in an SEC conference room, trying to demonstrate cooperation, trying to get cooperation credit, and theres a 27% chance – better then 1 in 4 – that a federal prosecutor is already involved in your case, already reviewing your documents, already planning your prosecution.

How do prosecutors get your SEC testimony? Through whats called an Access Request. Its a formal mechanism that most people have never heard of. The DOJ can request, and the SEC will provide: documents you produced voluntarily, transcripts of your testimony, investigative notes taken by SEC staff, the SEC’s own analysis of your case. Everything you gave to the civil investigators to show good faith flows directly to criminal prosecutors who have a 93% conviction rate at trial.

Let that sink in for a moment. You cooperate with the SEC because you think the civil investigation is seperate from criminal exposure. You answer questions because you want to appear cooperative. You produce documents because you beleive transparency will help your position. But theres no wall between civil and criminal in these cases. The civil investigation IS the criminal investigation – you just dont know it yet because nobody told you.

At Spodek Law Group, we see this pattern constantly. Someone comes to us after cooperating with the SEC for months, genuinly beleiving they were helping their case, genuinly thinking cooperation would result in credit and reduced penalties. Then they get a target letter from DOJ. They realize their own testimony, given voluntarily in a civil context, is going to be Exhibit A at their criminal trial. The cooperation they thought would help them is the very thing that will convict them.

Clients come to Spodek Law Group after making this exact mistake because theres no way to undo it once its done. The Fifth Amendment protects you from self-incrimination, but that protection only works if you actualy invoke it before you start talking. Once you’ve testified, once you’ve handed over documents, once you’ve answered questions on the record – you cant unring that bell. The transcript exists. The documents are in their files. The case against you is built on your own words.

The Cooperation Credit They Promised You

You’ve probly read the SEC’s success stories because they publicize them extensively. Akamai Technologies self-reported FCPA violations and got a non-prosecution agreement. Nortek cooperated extensively and settled for disgorgement only, with no additional penalties. Goodyear Tire came forward voluntarily and recieved significant cooperation credit that reduced their overall exposure. These are real cases with real outcomes. Real companies got real benefits from cooperation.

So why am I telling you cooperation is a trap?

Heres the part nobody mentions when they cite those success stories: those companies had one thing in common. No parallel criminal investigation. No DOJ involvement. No prosecutors watching from the sidelines. When DOJ isnt involved, cooperation with the SEC follows a relativly predictable path. You self-report, you remediate, you cooperate fully, you get credit. The system works exactly like the press releases say it should.

But when DOJ is watching – and remember, theres a 27% chance they are right now in your case – the calculus changes completly. Your civil cooperation dosent just help your SEC case. It builds your criminal case too. Every document you produce voluntarily becomes potential evidence. Every admission you make becomes a statement prosecutors can use. Every piece of testimony flows to prosecutors who have a 93% conviction rate when cases go to trial.

And heres the uncomfortable truth about cooperation credit itself that nobody wants to acknowledge: its completly discretionary. The SEC’s own Seaboard Report, which established the framework for cooperation credit in 2001, says explicitly that “no set of criteria can or should be strictly applied in any particular case.” Non-binding. Discretionary. Case-by-case determination. Translation: they promise nothing and they dont have to give you anything.

Legal analysists note that the “lack of predictability remains” despite the SEC claiming cooperation is being rewarded more consistently in recent years. One company self-reported violations to the SEC, cooperated extensively throughout the investigation, hired outside counsel to conduct an internal investigation, fired wrongdoers, implemented new compliance measures, did everything right according to the framework. There penalty? $200 million. Where exactly is the credit in a $200 million penalty? Where are the reduced consequences they were promised?

The SEC dosent publish statistics on cooperation that didnt work. They publicize Akamai and Nortek and Goodyear because those cases encourage others to cooperate, which makes investigations easier and faster. But for every success story that makes the press release, theres a company that cooperated fully and got hammered anyway. You dont hear about those cases because nobody wants to admit the system isnt as predictable as the official messaging suggests.

When Cooperating Made It Worse

This is were most people stop beleiving what I’m telling them. They think I’m being dramatic or trying to scare them into hiring a lawyer. They think cooperation has to help – it just makes logical sense that being helpful would result in better outcomes. But the data tells a differant story that contradicts the conventional wisdom.

Academic research looking at SEC enforcement from 2002 to 2010 found something shocking that the SEC dosent mention in their cooperation program materials: companies that cooperated with the SEC actualy faced INCREASED penaltys on average. Not reduced penaltys. Increased penaltys. The study found cooperation increased the probability of enforcement action by 4.2% and increased penaltys by $2.04 million compared to companies that didnt cooperate.

Read that again. Cooperation increased penalties by over $2 million on average.

Now, the SEC claims things have changed since 2010. They point to there 103 cooperation agreements, there non-prosecution agreements, there deferred prosecution agreements. They say the program has evolved and cooperation is now rewarded more consistently. Maybe they’re right. Maybe things have improved since that study was conducted. But the fundamental problem hasnt changed: cooperation is measured at the END of the investigation, not when you start cooperating.

What does that mean for your situation? It means you cooperate for months or years, handing over evidence, answering questions, demonstrating good faith, doing everything your told to do – and then the SEC decides at the end wheather your cooperation was good enough to deserve credit. If they decide it wasnt sufficient, if they decide you werent forthcoming enough or you didnt remediate quickly enough, you gave them everything and got nothing in return. You helped them build their case against you and recieved no benefit for doing so.

Beam Suntory paid $8 million to the SEC and recieved cooperation credit in the civil case. Then they went to DOJ for the criminal component. No credit. The criminal case proceeded as if the civil cooperation never happened. Two differant agencies with two differant standards and no coordination on what “cooperation” actualy means or how it should be rewarded.

Todd Spodek tells clients the same thing every time they ask about this: dont confuse SEC cooperation with DOJ cooperation. They’re seperate systems that happen to share information freely. Helping one dosent automaticly help the other. And the criminal case is always more dangerous then the civil one because the consequences include prison time, not just financial penalties.

The Only Question That Matters Now

So should you cooperate with the SEC?

The honest answer is: it depends on factors you probly dont know yet and cant easily determine on your own. And thats what makes this situation so frustrating – your being asked to make a decision with enormous consequences, but you dont have the information you need to make it intelligently.

Most people in your position want someone to tell them yes or no. Cooperate or dont cooperate. Give them a clear answer they can act on. But anyone who gives you a definitive answer without understanding your specific situation is doing you a disservice. The right answer depends on facts that only come out through careful investigation and analysis. Is there a parallel criminal investigation running alongside the SEC case? The SEC wont tell you and they dont have to. Is DOJ already reviewing your conduct based on SEC referrals? You wont know until you get a target letter or agents show up at your door. Will cooperation actualy result in meaningful credit that reduces your exposure? Nobody can promise that because the determination is made after you’ve already cooperated.

What we can tell you is this: cooperation without understanding what your cooperating into is dangerous. Testimony without knowing who’s listening on the other end is reckless. Handing over documents without understanding there criminal implications is a mistake people dont recover from because you cant take back what you’ve already given.

Before you answer any questions from SEC staff, before you produce any documents in response to subpoenas, before you sign Form 1662 and waive constitutional rights you didnt fully understand you had – you need to understand the full picture of your situation. Not just the SEC investigation thats in front of you. The potential criminal exposure that might be happening behind the scenes. The parallel investigation you might not know exists.

Call Spodek Law Group at 212-300-5196 before you talk to anyone else about your case. The consultation is free. The mistake of waiting until after you’ve cooperated isnt.

We put this information on our website because most people have no idea how this system actualy works beneath the surface. The other articles tell you cooperation is generally good, hire a lawyer, heres the Seaboard factors you should know about. We’re telling you the truth that makes the system uncomfortable: the cooperation question itself is a trap because it assumes a choice that might not exist, and you need someone who understands both the civil and criminal sides before you make any decisions that cant be undone.

The question isnt should you cooperate. The question is what are you cooperating into. Get that answer first. Then decide.

This might be the most important decision you make in this entire process. Dont make it alone, and dont make it without understanding the full picture of what your facing. The stakes are to high for guessing.