What Is an SEC Deferred Prosecution Agreement?

What Is an SEC Deferred Prosecution Agreement?

Welcome to Spodek Law Group. Our goal is to help you understand what a deferred prosecution agreement actually means – not the optimistic version where the charges disappear and everyone moves on. Because DPAs sound like a second chance. You cooperate, you reform your company, you pay some money, and the prosecution goes away. Simple. Except you’re confessing first. And if anything goes wrong over the next two or three years, that confession becomes the evidence that convicts you.

Here’s what most lawyers won’t explain upfront. A deferred prosecution agreement requires you to admit the relevant facts. Every document you produce, every admission you make, every wrongdoer you identify – that all becomes part of the record. The government files charges against you but agrees to hold prosecution in abeyance. The charges aren’t dismissed. They’re suspended. And they stay suspended only as long as you comply perfectly with every term for the entire deferral period.

Todd Spodek has seen clients enter DPAs believing they were getting a clean exit. They weren’t. They were entering a years-long probation period where one mistake could trigger full prosecution – using their own admissions as evidence. Boeing had a DPA. They’re now facing criminal prosecution. Ericsson had a DPA. They pleaded guilty after breaching it. The protection these companies thought they bought turned out to be temporary at best.

The Confession You Cant Take Back

Lets be clear about what a DPA actualy requires. You must admit the relevant facts of the misconduct. Not “no contest.” Not “neither admit nor deny.” Admit.

This isnt like a civil settlement where you can resolve the matter without acknowledging wrongdoing. A DPA requires you to confess – in writing, with specifics – to exactly what happened. And that confession becomes part of the agreement that the government files with the court.

Heres the kicker. If you breach the DPA, prosecutors can “use the defendants admissions in subsequent proceedings.” Read that again. Your own words become Exhibit A at your criminal trial. You’ve essentialy pre-convicted yourself.

Think about what this means strategicaly. In a normal criminal case, the government has to prove what happened. They have to investigate, gather evidence, interview witnesses, build there case from scratch. With a DPA, youve done that work for them. Youve told them exactly what happened, who did it, and how it violated the law. If you breach, they dont need to prove anything – you already admitted it.

This is why DPAs are sometimes described as probation before sentancing. Your guilty, but your not punished yet. The punishment is suspended, waiting to fall if you make a mistake. And the mistake dosent have to be related to the original misconduct – any federal violation can trigger it.

Why the SEC Barely Uses DPAs

Heres something that surprises most people. The SEC almost never uses deferred prosecution agreements.

Since the SEC’s “game-changing” first DPA with Tenaris in 2011, the agency has only used DPAs twice to resolve issuer FCPA enforcement actions. Twice. In nearly 15 years. And the SEC’s last use of an NPA or DPA was in mid-2016.

So when your thinking about an “SEC DPA,” understand that this isnt a common tool for the agency. The SEC generaly prefers traditional settlements, consent decrees, and enforcement actions. The DPA model is much more common at the Department of Justice.

This matters because the DPA your hoping for might not even be on the table. If your dealing with SEC enforcement, there probably looking at other resolution mechanisms entirely. DPAs are rare enough at the SEC that when they happen, there newsworthy.

The DOJ, by contrast, uses DPAs much more frequentley. In 2023, DOJ entered 19 NPAs and DPAs with corporations – though they actually favored guilty pleas, with 48 plea agreements that year. But even at DOJ, DPAs arent the default. Companies have to earn them through extraordinary cooperation, self-reporting, and remediation.

At Spodek Law Group, we help clients understand what resolution mechanisms are actualy available for there specific situation. Because pursuing a DPA that the agency dosent really offer is a waste of time and leverage.

The Monitor Working Against You

Heres something nobody explains clearly about DPAs. In about half of all deferred prosecution agreements, the government requires you to install an independent compliance monitor. And that monitor works for them, not you.

The monitor is described as “the eyes and ears of the DOJ, embedded within the company.” There usualy a former prosecutor or judge – someone who knows exactley what the government wants to see. There job is to review your reforms, test your new compliance systems, and report back to the government on wheather your actualy changing.

And heres the uncomfortable part. You pay for this surveillance. The monitor is “at the company’s expense,” which means your writing checks for $1,000 or more per hour to someone whos looking for problems to report to the government.

Think about the dynamic this creates. You have a former prosecutor inside your company, with access to your documents, your employees, your systems – and there primary loyalty is to the government agency that appointed them. If they find something concerning, they report it. If your compliance program has gaps, they document it. If your not making enough progress, that goes in there quarterly report.

This isnt a consultant helping you improve. This is a government agent embedded in your operations for two to three years, paid by you, reporting on you. The monitor relationship is fundamentaly adversarial even though its structured to look collaborative.

For companies with deeply ingrained compliance problems, monitors are almost unavoidable. But clients need to understand what there signing up for. A monitor isnt a helper – its a surveillence system.

When DPAs Become Criminal Prosecutions

The whole point of a DPA is supposed to be avoiding prosecution. But DPAs can – and do – turn into full criminal cases. Boeing is the most dramatic recent example.

Boeing entered a DPA following the investigation into two fatal crashes of the 737 Max 8 jet in 2018 and 2019. Under that agreement, Boeing was supposed to design, implement, and enforce a compliance and ethics program. They were supposed to prevent and detect violations throughout there operations.

According to the DOJ, Boeing failed. The government notified a federal court that it beleived Boeing was in breach of its DPA. And heres what breach means: Boeing is now subject to criminal prosecution for any federal criminal violation of which the government has knowledge. Not just the original charges. Anything.

Ericsson tells a similar story. The international telecom company entered a DPA in 2019 to resolve FCPA violations. Then they breached it. And they ended up pleading guilty to the same violations the DPA was supposed to resolve – plus additional charges that came to light during the monitorship.

These arent isolated examples. They demonstrate that a DPA dosent guarantee protection. It guarantees a period during which your protected – if you comply perfectley. Breach any term and the protection evaporates, leaving you in a worse position then if youd just pleaded guilty in the first place.

At least with a guilty plea, the matter is resolved. With a breached DPA, you face prosecution armed with your own confession.

What “Deferred” Actualy Means

The word “deferred” makes it sound temporary. Like the prosecution is on hold and will eventualy disappear. But the reality is more complicated.

Under a DPA, the government files criminal charges against you. Actualy files them. This isnt like a non-prosecution agreement where no charges are filed. With a DPA, there charging you – and then agreeing to hold prosecution in abeyance while you demonstrate good behavior.

The charges sit there, filed with the court, for the entire deferral period. Typicaly two to three years. During that time, you must comply with every term of the agreement. Pay the penalties. Install the monitor. Reform your compliance program. Cooperate with any ongoing investigations. Make witnesses available. Produce documents.

Only after you’ve completed all of this – perfectley, for years – do the charges get dismissed.

OK so what happens during those years? You operate under a cloud. The charges are public. Your competitors know. Your customers know. Your employees know. You cant fully move on because the matter isnt fully resolved. And every decision you make has to account for the risk that the government might decide your not complying adequately.

Thats what “deferred” actualy means. Its not dismissal. Its delayed judgment. The hammer is suspended over your head, waiting to fall if you slip up. And the government gets to decide wheather you slipped up.

The Price Tag Nobody Quotes Upfront

DPAs are sometimes presented as a way to avoid the worst consequences of prosecution. But look at the actual numbers and ask wheather “avoiding” is the right word.

TD Securities entered a DPA in September 2024. The total cost? Approximately $9.4 million criminal fine, plus $4.7 million in victim compensation, plus about $7 million in SEC settlement payments. Thats over $21 million – for a deferred prosecution.

Raytheon’s subsidiary entered a DPA in October 2024 with a penalty of $146.8 million. Teva Pharmaceuticals agreed to $225 million in there 2023 DPA – the largest penalty to date for a domestic antitrust cartel.

And these are just the direct penalties. Add in the cost of compliance monitors (millions more), internal investigations (more millions), outside counsel to negotiate the DPA (still more millions), and the operational costs of reforming your entire compliance program. Companies entering DPAs are often looking at tens or hundreds of millions in total costs.

Tenaris, the SEC’s first DPA in 2011, paid nearly $9 million in combined fines and penalties – almost double the $4.79 million profit they made from the improper conduct. The “deferred” prosecution cost them more then the crime ever earned.

Is this avoiding prosecution? Or is it paying prosecution-level penalties while also admitting guilt, installing a monitor, and hoping nothing goes wrong for the next three years?

Heres the honest assessment from Spodek Law Group. DPAs arent cheap alternatives to prosecution. There expensive alternatives that also carry ongoing risk. Sometimes there the best available option. But clients need to understand the true cost before deciding.

DPA vs NPA: The Difference That Matters

Theres another resolution option you might hear about: the non-prosecution agreement, or NPA. Understanding the difference between DPAs and NPAs matters because the consequences are significantley different.

With a DPA, the government files criminal charges against you and agrees to defer prosecution while you comply with the agreement terms. The charges are public. There filed with the court. If you breach, prosecution proceeds.

With an NPA, no charges are filed at all. The government agrees not to prosecute as long as you comply with specified requirements. The agreement is made public, but theres no court filing of charges.

This distinction has real implications. NPAs generaly signal greater trust from the government – there reserving prosecution without even filing charges. NPAs are more likely when companies self-report early and cooperate extraordinarily well. Monitorships are less common with NPAs then with DPAs.

But both agreements require similar things: admission of material facts, waiver of the statute of limitations, ongoing cooperation, compliance reforms, and monetary penalties. The core bargain is the same. The difference is wheather charges sit on the court’s docket during your compliance period.

At Spodek Law Group, we help clients understand wheather an NPA is realisticaly available for there situation. Because if your going to negotiate for a resolution, you should know what your actualy able to get.

Why Companies Still Sign These Agreements

Given all the risks – the confessions, the monitors, the breach possibilities – why do companies agree to DPAs at all?

Because the alternatives are often worse.

A guilty plea means conviction. For companies in regulated industries, a conviction can trigger automatic debarment from government contracts. It can result in exclusion from federal programs. It can destroy customer relationships and tank stock prices. Teva’s DPA explicitly noted that a guilty plea would have resulted in mandatory exclusion from federal programs – which for a pharmaceutical company would be devastating.

Fighting the government is expensive, uncertain, and reputationaly damaging. Federal prosecutors win most of there cases. A trial means years of litigation, massive legal fees, and public scrutiny of your worst conduct. Even if you win, you’ve lost in many practical ways.

So DPAs represent a middle path. You avoid the automatic collateral consequences of a conviction. You can continue operating, continue bidding on contracts, continue serving customers. You pay a steep price – in money, in admissions, in years of oversight – but you survive as a company.

Thats the calculation most companies make. Not that DPAs are good, but that there less bad then the alternatives. And for many companies, that calculation is correct.

The key is understanding exactly what your agreeing to before you sign. Not the optimistic version. The real version. Spodek Law Group helps clients make that decision with complete information about the risks there taking on.

The Collateral Consequences You Avoid

One thing DPAs genuinley accomplish is avoiding automatic collateral consequences. And for some companies, this alone makes the DPA worth pursuing.

A conviction – even a corporate guilty plea – can trigger a cascade of regulatory consequences. Government contractors face mandatory debarment. Healthcare companies face exclusion from Medicare and Medicaid programs. Financial institutions face license revocations. Defense contractors lose security clearances. For companies in regulated industries, a conviction can be a corporate death sentence.

Teva’s DPA specificaly noted this dynamic. A guilty plea would have resulted in mandatory exclusion from federal healthcare programs. For a pharmaceutical company that sells products to Medicare patients, thats catastrophic. The DPA let them pay massive penalties while staying in business.

This is why DPAs exist in there current form. The government recognizes that destroying a company completley sometimes hurts innocent employees and shareholders more then it punishes wrongdoers. A DPA extracts punishment – serious punishment – while allowing the company to continue operating.

But make no mistake. The government dosent hand out DPAs because there sympathetic. They hand them out when they’ve calculated that a DPA extracts more value then a conviction would. More money in penalties. More cooperation. More information about individual wrongdoers. The government gets what it wants either way.

The Breach That Changes Everything

Lets talk specificaly about what happens when a DPA goes wrong.

When the government determines that youve breached your DPA, several things happen immediately. First, the agreement typicaly allows prosecutors to resume prosecution without any additional investigation. There charges are already filed. There just been waiting.

Second, your own admissions become evidence against you. Remember all those facts you admitted in the DPA? The government can use them in court. You cant take them back. You cant claim you were coerced. You signed the agreement voluntarily.

Third, the scope of potential charges expands. Many DPAs specify that breach subjects you to prosecution for any federal criminal violation the government knows about – not just the original charges. All those documents you produced during cooperation? There potential evidence for charges you havent even been told about.

Fourth, the statute of limitations dosent protect you. DPAs require you to waive or toll the limitations period. So even if the original conduct happened years ago, prosecution remains possible.

This is why breach is catastrophic. Your not just back to where you started. Your in a worse position. The government has your confession, your documents, your cooperation, and years of monitor reports about your compliance failures. Defending against prosecution becomes nearly impossible.

The lesson? If your going to sign a DPA, you need absolute certainty that you can comply with every term for the entire period. Partial compliance isnt enough. Good faith efforts arent enough. You need perfect compliance. Otherwise your signing your own conviction papers.

What Clients Ask Us About DPAs

Every client considering a DPA asks some version of the same question: Is this really protecting me, or am I just making things worse?

And the honest answer is: it depends on facts you probly dont fully understand yet.

It depends on wheather the government sees you as a genuinley reformed company or as a risk for future violations. It depends on how serious the underlying conduct was. It depends on wheather the collateral consequences of conviction would be worse then years of oversight and monitoring.

What we never tell clients is that a DPA is a simple solution. Its not. Its a complex, risky, expensive agreement that requires years of perfect compliance and offers no guarantee of protection if something goes wrong.

What you need is someone who understands how prosecutors actualy evaluate DPA candidates. Someone whos seen which companies get DPAs and which dont. Someone who can help you calculate the real odds and the true costs – not the optimistic version, the real version.

Thats what Spodek Law Group offers. We dont promise easy resolutions that dont exist. We tell you whats actualy happening and help you make the best decisions possible given the situation your facing.

Call us at 212-300-5196. The consultation is free. The cost of misunderstanding what your signing isnt.