Securities Fraud: How Cooperation Can Lead to Non-Prosecution Agreements

Securities Fraud: How Cooperation Can Lead to Non-Prosecution Agreements

Securities fraud is a serious issue that can have major consequences for companies and individuals. However, cooperation with authorities can sometimes lead to more favorable outcomes like non-prosecution agreements (NPAs). This article will examine securities fraud issues and how cooperation – such as self-reporting, remediation efforts, and providing substantial assistance – can potentially lead to NPAs for companies and individuals accused of wrongdoing.

What is Securities Fraud?

Securities fraud refers to deceptive practices relating to the trading of stocks, bonds and other securities. This can include activities like insider trading, making false statements, accounting fraud, and manipulating share prices. Essentially, securities fraud involves dishonest behavior that induces investors into making decisions they otherwise wouldn’t have made.

There are a few key laws that prohibit securities fraud at the federal level in the U.S. These include the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, and the Dodd–Frank Wall Street Reform Act. Violating these laws can lead to civil penalties, criminal charges, fines, and imprisonment.

What are the Consequences of Securities Fraud?

The outcomes for those caught engaging in securities fraud can be severe. At the federal level, the Securities and Exchange Commission (SEC) pursues civil enforcement actions that can lead to hefty financial penalties, disgorgement of ill-gotten gains, and injunctive relief. The Department of Justice (DOJ) can bring criminal charges for securities fraud under federal statutes that may result in massive fines and years in prison. State authorities can also prosecute securities violations under state Blue Sky laws.

Beyond direct legal consequences, those accused of securities fraud often face huge reputational damage. The stigma can destroy careers and follow individuals or companies around for decades. Lawsuits from investors and shareholder groups can also impose enormous financial costs.

How Can Cooperation Lead to NPAs in Securities Fraud Cases?

The consequences make securities fraud charges daunting for any organization or individual. However, cooperation with authorities can sometimes provide a valuable opportunity to resolve matters through a non-prosecution agreement rather than facing the full weight of prosecution.

NPAs are a middle ground between declining prosecution and criminal indictment that essentially suspend charges as long as the accused party meets certain conditions over a period of time. While legally binding, NPAs allow companies and individuals to avoid an official criminal conviction if they adhere to the terms.

According to the DOJ, self-reporting, remediation efforts, and providing substantial assistance are all factors that can lead to NPAs in corporate criminal matters. How these forms of cooperation apply specifically in securities fraud cases is explored below:


Voluntarily self-reporting securities violations to the SEC or DOJ can demonstrate credibility and willingness to rectify wrongdoing. It shows recognition of misconduct rather than concealment. While difficult, self-reporting may prevent authorities from learning of issues through other means, which is likely to result in worse outcomes.

The DOJ notes self-reporting must be done in a timely manner when the party has sufficient knowledge of misconduct to be credible. The SEC’s Enforcement Manual states that self-reporting can be considered when determining charges.

Providing Substantial Assistance

Providing substantial assistance to authorities in their investigation can be enormously helpful in pursuing NPAs. This cooperation can include sharing internal investigation findings, providing detailed witness accounts, and disclosing documents or evidence.

Essentially this means helping authorities build the strongest case possible against any bad actors involved and the full scope of violations. While incriminating, it may allow companies and individuals to avoid prosecution in exchange for the value of cooperation.