For seven years, Kyle DeYoung was at the Securities and Exchange Commission (SEC), enforcing federal securities laws. 

Now he’s on the other side, a partner at Cadwalader, facing down the SEC on enforcement actions.

What advantage do you get on the defense side for having worked at the SEC for over seven years?

“You become a subject matter expert,” DeYoung told Corporate Crime Reporter in an interview last month. “You have experience dealing with many of the issues that come up on the defense side. I tried an insider trading case to verdict. I tried a market manipulation case. You get substantive expertise from living the cases. You also get a pretty good understanding of the way the investigative process works. That is both timing, how it works, what to expect, what is out of the ordinary, what the SEC Division of Enforcement is focused on, what is important to them, what is the best way to advocate for your client, the best way to cooperate with an investigation.” 

“It’s not inside baseball, it’s not favors or anything like that. But you both know the substance really well, you know the process really well, and you have a better sense of what kind of advocacy works with the SEC staff because you have been there. You have investigated the cases, you have tried the cases, you have a sense of where the weak spots are, where you can push back.”

“It’s really experience with the subject matter and with the process that gives you the experience to be able to advise your client in the best way possible.”

With the SEC there is an expanding array of settlement options. When were deferred prosecution agreements introduced into the SEC process?

“I can’t say when the first one was. They may have done them as one offs for a while. The use of deferred and non prosecution agreements at the SEC has increased in the last five years. Under Chair White, it began to increase. They still don’t do dozens of these things. When I left the SEC, there were still only 15 to 20 that had been done in the previous few years.” 

“But it has become an important potential resolution. For the SEC to enter into one of these agreements, there is a high standard for the kind of cooperation that is required from a company in that type of case. For FCPA cases, they have to self report to get that kind of deal.” 

“It has become a bigger option for the SEC in the past few years. But it is still relatively rare. They have tried to make it clear what their expectation was for cooperation. They view a deferred or non prosecution agreement as a tool to increase the amount of cooperation they are getting. For FCPA cases, you need to self report. But overall, self reporting is a big factor in whether or not you qualify for deferred or non prosecution agreements. Then the rest of cooperation required is pretty high to qualify for that kind of deal.”

How do these agreements differ from your typical SEC settlement?

“Your typical SEC settlement is a settlement where you pay disgorgement. There would be a civil penalty. It’s usually under a neither admit nor deny basis. With an SEC settlement, depending on the type, there can also be collateral consequences. If it’s an individual, it can come with an officer or director bar or other kinds of bars. If it’s a company, it can limit your ability to raise money or other collateral consequences.” 

“There are also cases where the SEC just walks away and doesn’t bring a case. They just close the investigation without recommending an enforcement action. They don’t publicly announce those. The company will get a closing letter from the SEC. There is not a public record of those closing letters.”

“A deferred prosecution or a non prosecution is favorable to a company because they will not have a court order against them. They won’t have an injunction or a cease and desist order against them either. And sometimes, as part of a deferred or non prosecution agreement, they will agree to repay investors and remediate problems. But what you won’t have is any kind of action against you that 

will trigger collateral consequences or be on your record. If you get into another problem, you won’t be considered a recidivist.” 

What is the benefit of a deferred and non prosecution agreement if a regular court ordered settlement has neither admit nor deny wording?

“Even under a neither admit nor deny settlement, if you are settling a fraud based offense, that can trigger collateral consequences and you will be required to get a waiver or suffer the consequences. That might include losing your ability to use the short form financing. For an individual, you can be barred from being an officer or director of a company. You can be barred from participating in the securities industry. There are consequences that are triggered even by a settlement if there is a court order that triggers collateral consequences.” 

“Under a deferred or non prosecution agreement, those are not triggered and you are not considered a recidivist. It’s better, but you may still be remediating your problems, you may still be paying a financial penalty. But what you don’t have is a settlement on the record that will trigger collateral consequences or make you a recidivist if you have another violation.”

What are the enforcement benefits of deferred and non prosecution agreements?

“They are tools to encourage cooperation. They want to encourage companies to self report essential violations or to do investigations and share them with the SEC. The SEC is saying – if you self report something that we did not know about before, you cooperate in every way, you find the facts and share them with us, we are going to give you a real good deal because we want to encourage that kind of behavior going forward.”

Do you have any desire to get back into enforcement?

“The SEC was a great place to work. It was a lot of fun. I don’t have a burning desire to go back. But I would never say never. Before ending my career, I would have that conversation, no doubt. But in the short term, I’ve been out only three years. I’m really enjoying private practice. I’m not in a hurry. But public service is interesting. The SEC was a great place to work and I enjoyed my time there.”

[For the complete q/a format Interview with Kyle DeYoung, see page 34 Corporate Crime Reporter 42(12), Monday November 2, 2020, print edition only.]