Do You Need “Cooperation Credit”?

What happens when inappropriate, improper or illegal conduct is discovered at your company? A range of choices immediately loom. They run from nothing, to self-reporting to the authorities, to covering it up. SEC Enforcement Director Gurbir S. Grewal recently addressed one option in remarks titled “The Five Principles of Effective Cooperation in SEC Investigations, May 23, 2024 (here).

Following a preface in which the Director tried to assure everyone that self-reporting is worthwhile, the Director detailed five principles for undertaking the task. They are:

The best cooperation starts early and well before the SEC gets involved, with self-policing.

Once you discover a possible violation, self-report without delay.

Don’t stop with the self-report. Remedies.

The type of cooperation that earns credit requires going above and beyond what’s legally required – more than simply complying with subpoenas without undue delay or gamesmanship.

Collaborate with Enforcement Staff early, often, and substantively.

There should be no doubt about the soundness of the five principles listed above. Starting early following the discovery of not just wrongful conduct but any actions that may be out of sync with the tone the company wants at the top and in the culture is virtually always the best approach – delay almost always means the conduct discovered begins to fade from memory, a prospect that may dull or ultimately dissuade any action.

Coupling immediate action to address the issue, and tying that approach to reporting it to those appropriate at the company and, if seeking cooperation credit, the SEC, while engaging in remediation helps ensure appropriate action and perhaps credit. Stated differently, this helps ensure that the culture of the company – hopefully a reflection of positive and beneficial tone at the top – continues to grow and thrive.

Likewise, immediately going the extra mile when not just ending unwanted actions or conduct, but reaching past that with extra steps, helps ensure that the overall tone, tenure and culture of the company continues to grow in an appropriate way.

Overall, the Director’s Five Principles are not just a code for self-reporting to the SEC but for helping safe-guard what may be a good, positive culture at the firm while improving it for the future. Thus, regardless of your view of self-reporting and trying to earn “cooperation credit” from the SEC – something some believe in while others remain skeptical about and some do not believe in — the five principles enumerated by the Director can help a company continue to grow and improve a positive culture. If that happens, with a bit of luck, there may never be a need to figure out if “self-reporting” has merit or not – your company will not need to try and earn “cooperation credit.” And that is where everyone wants to be.