In context

SEC enters into DPA with an individual for the first time

January 13, 2014
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In context

The SEC announced its first deferred prosecution agreement with an individual. In exchange for not being prosecuted individuals must, during a set period, comply with certain prohibitions and undertakings. Previously, the SEC only entered into non-prosecution and deferred prosecution agreements with corporations. This development highlights the SEC’s serious take on cooperation.

On 12 November 2013, the US Securities and Exchange Commission (SEC) announced its first deferred prosecution agreement (DPA) with an individual, former hedge fund administrator, Scott Herckis. Herckis voluntarily produced voluminous documents and informed the SEC on how a former hedge fund advisor, Berton M. Hochfeld, defrauded his clients. As a result, the SEC was able to file an emergency action in November 2012 within weeks. The SEC succeeded in putting a hold on the fraud and freezing the hedge fund’s and Hochfeld’s personal assets. These assets are added to the Fair Fund, which is used to reimburse defrauded investors.

 

As part of the DPA, Herckis must comply with certain prohibitions and undertakings. Among other prohibitions and undertakings, Herckis is prohibited, for a period of five years, from serving as a fund administrator, providing any services to any hedge fund and associating with any broker, dealer, investment advisor, or registered investment firm. The DPA requires Herckis to disgorge approximately USD 50,000 in fees he received as the fund administrator, which will also be added to the Fair Fund.

 

DPAs were first introduced in the United States, and are now an important development for companies operating in the US and the UK. In our In context of October 2013 we discussed the Consultation on DPAs in the UK. The UK legislation on DPAs, expected to enter into force in February 2014, bears many similarities to the US version, but unlike UK prosecutors, US prosecutors can enter into DPAs with both individuals and corporations. UK DPAs apply solely to corporations.

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