SEC Cooperation Credit Explained

SEC Cooperation Credit Explained

Welcome to Spodek Law Group. Our goal is to give you the truth about SEC cooperation credit – not the hopeful version where following the rules guarantees a reward. Because cooperation credit sounds like a transaction. You cooperate, you get credit. Simple. Except the SEC has explicitly refused to define what that credit means or how its calculated.

Heres the uncomfortable reality. You can do everything right. Self-report immediately. Fire the wrongdoers. Hire consultants. Produce every document. Answer every question. And still face maximum penalties. Because cooperation credit isnt a formula. Its a judgment call made by SEC staff after youve already cooperated – and theres no guarantee youll like the result.

Todd Spodek has watched clients go through this for years. The pattern is always the same. Companies believe cooperation will be rewarded proportionately. That more cooperation equals more credit. That following the Seaboard factors is like following a recipe. It dosent work that way. The SEC explicitly says no criteria should be “strictly applied.” Which means your cooperating without knowing what youll get – and hoping the SEC decides it was enough.

What “Cooperation Credit” Actually Means

Lets start with what the SEC officially says cooperation credit can get you. According to the SEC’s enforcement cooperation program, meaningful cooperation can result in reduced charges, reduced civil penalties, lighter sanctions, no charges at all, or mitigating language in settlement documents.

Sounds promising, right? But read that list again. “Can result in.” Not “will result in.”

The SEC has never published a formula. Theres no chart that says self-reporting equals 25% off. No calculator that tells you what remediation is worth. The Seaboard Report from 2001 describes what actions the SEC considers, but explicitly states that “no set of criteria can, or should, be strictly applied in every situation.”

Think about what that means for you. Your cooperating without knowing the price. Your making decisions about self-reporting, about producing documents, about waiving privilege – without any guarantee of what youll get in return.

Heres the kicker. Only 13% of cooperating public companies avoided monetary penalties in fiscal year 2023. The other 87% cooperated and still paid. Some paid millions.

So when the SEC talks about cooperation credit, what there actually describing is a possibility, not a promise. You might get credit. You might not. And youll find out after youve already done all the cooperating.

The Seaboard Framework Nobody Follows Strictly

In October 2001, the SEC issued what everyone calls the Seaboard Report. This report described four factors the SEC considers when evaluating cooperation: self-policing, self-reporting, remediation, and cooperation with enforcement staff.

Most lawyers present these like a checklist. Self-police? Check. Self-report? Check. Remediate? Check. Cooperate? Check. Now collect your cooperation credit.

But the SEC doesnt treat it as a checklist. The Seaboard Report specifically says the SEC looks at the egregiousness of the misconduct, how long it lasted, whether officers or directors knew about it, wheather the investigation was thorough, and whether there are assurances it wont happen again.

So even if you check every box on the four factors, the SEC can still decide the underlying misconduct was to serious to reward cooperation. Or that your investigation wasnt thorough enough. Or that your assurances arent convincing.

This is why companies get confused. They think Seaboard is the formula. Its not. Its a framework that the SEC applies – or doesnt apply – however they see fit in each specific case.

At Spodek Law Group, we tell clients the truth about Seaboard. Its not a guarantee. Its not even a strong guideline. Its a description of what the SEC might consider, with explicit warnings that nothing should be strictly applied.

When Self-Reporting Actually Makes Things Worse

Heres something most lawyers wont tell you. Self-reporting can actualy result in higher penalties than staying silent.

Look at the off-channel communications sweep. The SEC investigated firms for failing to preserve employee communications on personal devices. Some firms self-reported the problem. Others didnt.

The result? One self-reporting firm paid $15 million. A similar-sized firm that did NOT self-report paid only $10 million.

Read that again. The company that came forward voluntarily, that told the SEC about the problem before being asked, paid 50% more than the company that stayed quiet.

Both firms were required to retain compliance consultants for two years. The self-reporting firm’s “significant remedial steps” didnt change that requirement. So what exactly did self-reporting buy them? A higher fine and the same compliance obligations.

This isnt an isolated example. The SEC has settled cases with multimillion dollar penalties despite self-reporting and cooperation. The high penalties “undercut the messaging that the SEC proclaims to be sending with its settlements.” Companies that did everthing right – self-reported promptly, remediated completly, cooperated fulley – still faced penalties that made self-reporting look like a mistake.

Before you self-report anything, understand this risk. Self-reporting starts the clock on an investigation that might never have happened otherwise. If the SEC decides your cooperation wasnt good enough, youve just handed them evidence they might never have found on there own.

The Five Principles That Dont Add Up to a Formula

In May 2024, SEC Enforcement Director Gurbir Grewal gave a speech about the “five principles of effective cooperation.” Self-policing, self-reporting, remediation, cooperation, and collaboration.

Notice he added a fifth principle to the original Seaboard four. Collaboration. Which he described as “the throughline that runs across many of the recent matters where the Commission has rewarded cooperation.”

So now theres five boxes to check instead of four. But heres the problem. Grewal still didnt explain how checking these boxes translates to specific outcomes.

He said self-reporting is “the most significant factor in terms of moving the needle on penalties.” But he didnt say how much the needle moves. He said going “above and beyond what’s legally required” earns credit. But he didnt define where “beyond” starts.

This is the pattern with SEC cooperation guidance. They tell you what to do. They dont tell you what you get for doing it.

And thats not an accident. If the SEC published a formula, companies would do exactly that much and no more. The ambiguity is intentional. It keeps everyone cooperating as thoroughly as possible – because nobody knows whats enough.

Why 87% of Cooperators Still Pay

Heres the math nobody talks about. In fiscal year 2023, only 13% of public companies that cooperated avoided monetary penalties. The year before, it was only 3%.

So even in a “good” year for cooperation credit, nearly nine out of ten cooperating companies still wrote a check to the SEC.

Why? Because cooperation credit reduces penalties. It doesnt eliminate them. And theres no formula for how much reduction you get.

Think about it from the SEC’s perspective. They have enforcement statistics to hit. They have penalties to collect. They have headlines to generate. Giving everyone who cooperates a free pass doesnt serve any of those goals.

The SEC credited cooperation in 75% of public company investigations according to Cornerstone Research. But “credited cooperation” just means they mentioned it in the settlement documents. It dosent mean the penalty was reduced significantley. It dosent mean charges were dropped. It means the SEC acknowledged that you cooperated. Thats potentialy a very different thing then what you expected.

Thats a huge gap between what people expect cooperation credit means and what it actualy delivers. You expect a transaction. You get a notation.

The Timing Problem With Cooperation Credit

Theres another aspect of cooperation credit that trips people up. The timing.

Cooperation credit is determined by the SEC staff. Its given at there discretion. And its typically decided “well after the self-reporting.”

What does that mean for you? It means your making all your cooperation decisions upfront – without knowing what credit youll get. You self-report today. You produce documents this month. You sit for testimony next quarter. And somewhere down the line, the SEC decides whether it was enough.

By that point, youve already given them everything. If they decide your cooperation wasnt satisfactory, you cant take it back. You cant un-produce the documents. You cant un-testify. Youve built there case for them and now your hoping they reward you for it.

This is why timing matters so much. Every decision about cooperation is a decision made without full information. Your gambling that the SEC will value your cooperation the way you think they should.

At Spodek Law Group, we help clients understand this timing dynamic before they start cooperating. Because once you start, the leverage shifts. The SEC knows everything you know. And you still dont know what your getting in return.

Individual vs Corporate Cooperation Credit

Heres something that trips people up constanty. Corporate cooperation credit and individual cooperation credit are completly different things.

When a company cooperates with the SEC, the company gets credit. Not the executives. Not the employees. Not you personaly. The corporation as an entity earns the credit and recieves any reduction in penalties.

But heres the dangerous part. Corporate cooperation often involves identifying the individuals responsible for the misconduct. The company earns credit by pointing fingers. At you.

So your company might be cooperating with the SEC right now. There internal investigation might be building a timeline of who knew what and when. There lawyers might be preparing presentations for the SEC that name specific people. Including you.

And all of that cooperation helps the company. It hurts you.

This is why individual defendants often find themselves in an impossible position. Your employer cooperated – against you. The companys admissions become evidence in your individual case. The internal investigation your company conducted becomes the SEC’s roadmap.

Think about it from the SEC’s perspective. They dont have unlimited resources. Investigating a company from scratch takes time and money. But if the company hands them an internal investigation that identifies who did what? Thats gold.

So the company earns cooperation credit. You get prosecuted.

At Spodek Law Group, we see this pattern regulary. Clients who assumed there companys cooperation would help them. Who didnt realize the company was building a case against them while “cooperating” with the SEC. Who found out to late that corporate cooperation and individual protection are completly different things.

If your company is under SEC investigation, you need your own lawyer. Not the companys lawyer. Your own. Because the companys interests and your interests are not the same – no matter what they tell you.

What the SEC Actually Wants From You

So if theres no formula, what does the SEC actualy want?

Based on recent enforcement actions and speeches, heres what seems to matter most.

First, timing of self-report. The faster you come forward, the better. Waiting weeks while you conduct an internal investigation isnt ideal. The SEC wants to know about problems as early as possable. Delay can significantley reduce whatever credit you might otherwise recieve.

Second, production beyond what’s required. Simply complying with subpoenas dosent earn credit. The SEC expects documents it “cannot compel” – meaning voluntary production that goes beyond legal requirements. Internal investigation findings. Privileged materials. Financial analyses you prepared yourself.

Third, witness cooperation. Making witnesses available promptly. Facilitating testimony from former employees. Explaining factual issues in detail. Translating foreign documents.

Fourth, remediation. Firing wrongdoers. Strengthening controls. Paying back harmed investors. Making changes before the SEC tells you to. This means acting immedialy and definatively.

Fifth, collaboration. Communicating with the SEC “early, often, and substantively.” Treating them as partners, not adversaries.

Do all of this and you might get credit. Might. Theres still no guarantee. The SEC can look at all your cooperation and decide the underlying conduct was to egregious to reward.

The Calculation They Refuse to Share

Nobody should make cooperation decisions without understanding this. There is no published formula. There is no guarantee. There is no way to know in advance what your cooperation will buy you.

The SEC says this explicitly. “There is no guarantee that the Commission will forego an enforcement action, penalties, or sanctions – as these decisions vary widely based on the facts and circumstances of each case.”

This unpredictability isnt a bug. Its a feature. The SEC benefits from companies not knowing exactly what cooperation is worth. Because when you dont know, you cooperate more. You produce more documents. You share more information. You go further above and beyond.

If the SEC said self-reporting is worth a 30% penalty reduction, companies would self-report and stop there. By keeping it vague, the SEC keeps companies cooperating all the way through the process, hoping that maybe if they do a little more, theyll get a little more credit. The uncertainy is deliberatly maintained.

The system is designed to extract maximum cooperation with minimum guaranteed return. And it works. Companies keep cooperating because the alternative – not cooperating – is worse. So they take the gamble.

How Companies Get This Wrong

The biggest mistake companies make with cooperation credit is treating it like a contract. You cooperate, the SEC gives you credit, everybody wins.

Thats not how it works. Cooperation credit is discretionary. Its determined by SEC staff who have there own priorities, there own cases, there own interpretation of the Seaboard factors. Different staff members might value the same cooperation differently.

The second mistake is waiting to long to think strategicaly. By the time most companies hire lawyers who understand SEC enforcement, theyve already made key cooperation decisions. They self-reported without considering the risks. They produced documents that hurt there case. They made admissions they cant take back. These decisions are essentialy irreversable.

The third mistake is assuming your companys cooperation protects you personally. It dosent. Corporate cooperation credit goes to the corporation. If your an individual defendant, your cooperation is evaluated separatly. And sometimes corporate cooperation involves cooperating against you.

This is why Spodek Law Group starts strategy discussions before the first document production. By then, its often to late. The decisions that matter most happen at the beginning – when most companies arent thinking about cooperation credit at all.

What We Tell Clients About Cooperation Credit

Every client who comes to us about SEC cooperation asks the same question. Should I cooperate?

And every time, we give the same honest answer. It depends on facts you probly dont fully understand yet.

It depends on wheather the SEC already knows about the problem. If they do, self-reporting means less. It depends on how serious the underlying conduct is. Egregious misconduct might not get credit regardless of cooperation. It depends on wheather your an individual or a company. Corporate cooperation is evaluated differently.

The one thing we never tell clients is that cooperation guarantees a good outcome. Because the SEC specifically says it dosent.

What you need is someone who understands how the SEC actualy makes these decisions. Someone whos seen what cooperation gets credited and what gets ignored. Someone who can help you calculate the real odds – not the optimistic ones, the real ones.

Thats what Spodek Law Group offers. We dont promise cooperation credit youll never see. We tell you whats actualy happening and help you make the best decisions possible given the uncertainty you face.

Call us at 212-300-5196. The consultation is free. The cost of misunderstanding cooperation credit isnt.

The Reality Nobody Wants to Accept

SEC cooperation credit sounds like a deal. You cooperate, you get credit. Fair exchange.

But its not a deal. Its a gamble. Your betting that the SEC will value your cooperation the way you hope they will. Your betting that self-reporting wont backfire. Your betting that the hours of document production and witness prep and remediation will translate to reduced penalties.

And 87% of the time, cooperating companies still pay. Sometimes they pay more then companies that didnt cooperate at all. The statistics are undeniabley troubling.

Does this mean you shouldnt cooperate? Not necessaraly. The alternative – fighting the SEC without cooperating – is expensive, risky, and often ends worse. But cooperation isnt the guaranteed path to a good outcome that people think it is.

The system is what it is. The SEC wants cooperation. They incentivize it with vague promises of credit. They refuse to define what that credit means. And they decide what your cooperation was worth after youve already given them everything.

Thats the reality. Most people dont want to hear it. But understanding it is the only way to make smart decisions. Because if you go in expecting a transaction and get a gamble instead, youve already lost. Thats a fundementaly important point.

We’ve handled these matters for years. We’ve watched companies cooperate themselves into worse outcomes and we’ve watched companies fight for terms that protected there futures. The difference isnt whether they cooperated. Its whether they understood what cooperation would and wouldnt get them before they started.

Thats what matters. Not optimism. Not hope. Clear-eyed understanding of a system that dosent work the way people think it does. Most people never get that understanding until its to late. Dont be one of them.