Robert PlotkinKurt E. WolfeThe SEC and DOJ regularly enter into binding settlement and plea agreements to resolve fraud and corruption matters in both civil and criminal contexts.  According to a July 2011 NERA Economic Consulting report tracking SEC settlement trends, the Commission entered into 344 enforcement action settlements in the first half of 2011; 114 of which were with corporate entities.  These metrics are roughly in line with NERA’s 2010 numbers, which cite 681 total SEC settlements, including 160 agreements with corporates.

The SEC encourages its Enforcement Staff to enter into binding settlement agreements.  In fact, the SEC Enforcement Manual sets out the process the staff must follow in negotiating and finalising settlement agreements.  (Generally speaking, Enforcement Staff are permitted to negotiate the terms of any such settlement, though the settlement and its terms must be authorized by the Commission.) 

SEC settlements result in a formal court order, endorsed by the judge presiding over the pending enforcement matter.  In the order, defendants typically agree to settle the charges, without admitting or denying the Commission’s allegations, and consent to the entry of a final judgment setting out certain conditions.  The conditions often include an order enjoining the defendant from violating the federal securities laws and ordering him to pay a civil penalty and, in appropriate cases, disgorgement.  The Commission might, in its discretion, impose additional conditions. 

The DOJ, too, has a well-established practice of negotiating and entering into binding plea agreements.  In fact, Rule 11 of the Federal Rules of Criminal Procedure expressly endorses negotiated plea agreements, setting out a procedure by which an attorney for the government and defense counsel may discuss and reach a plea agreement.  Moreover, Rule 11 provides for the courts’ consideration of a plea agreement, and sets out steps a court must take if it rejects the terms of a plea deal. 

Like the SEC’s Enforcement Manual, the United States Attorneys’ Manual offers important guidance on plea agreements.  Section 9-27.400, for example, sets out the basic steps the DOJ must take in entering into a plea agreement:  ‘The attorney for the government may, in an appropriate case, enter into an agreement with a defendant that, upon the defendant’s plea of guilty or nolo contendere to a charged offense or to a lesser or related offense, he/she will move for dismissal of other charges, take a certain position with respect to the sentence to be imposed, or take other action’.  With regard to fraud cases in particular, Section 9-16.040 recommends, ‘When possible, United States Attorneys should require an explicit stipulation of all facts of a defendant’s fraud against the United States when agreeing to a plea bargain, including acknowledgement of the financial consequences or damages to the government’.  

With regard to determining the actual sentence imposed, a June 2010 New York Law Journal article provides a useful summary of the approach taken by several US Attorneys General over the past thirty years.  The current state of play, according to a memo issued by Attorney General Eric H Holder Jr, requires that a plea agreement ‘reflect the totality of a defendant’s conduct’.  According to the NYLJ article, this means ‘that while a prosecutor “should seek a plea to the most serious offense”, that decision should be “informed by an individualized assessment of the specific facts and circumstances of each particular case”’. 

The use – and, indeed, the fate – of negotiated plea agreements in the UK is very much an open question.  While UK regulators have attempted to enter into and enforce binding plea deals on limited occasions, UK courts are disposed to setting those agreements aside, insisting only they have the authority to ‘do deals’.  Thus, while the SFO want to encourage corporates to self-report corruption, the promise of a plea bargain as an incentive for corporates in the UK is somewhat dubious. 

In a helpful article available on Thomson Reuters’ TrustLaw website, Ian Leist QC, barrister and partner at Fulcrum Chambers, examines the ‘difficult history’ of the plea bargain in the UK.  Mr Leist cites a number of cases in which UK courts have declined to follow the terms of a negotiated plea agreement in a criminal context.  In R v Dougall, for example, Mr Justice Bean rejected a plea deal offered, in part, because of the defendant’s substantial cooperation.  He reasoned, ‘In this jurisdiction a plea agreement between the prosecution and the defence in which they agree what the sentence should be or present what is an agreed package for the courts acquiescence is contrary to the principle.’  Mr Justice Bean’s logic was well-received in the Court of Appeal, which noted, ‘…although the prosecution should be involved in the process by which the sentencing court is fully informed about any matters arising from the evidence which may reflect on the defendant’s criminality and culpability … this process does not involve an agreement about the level of sentence’.   

Indeed, according to Philip Urofsky and Josanne Rickard of Shearman & Sterling LLP in a recent Reuters blog, corporates should regard plea agreements only as a ‘second option’.  For, while a company might successfully ‘negotiate the scope of the factual allegations to which it must admit and agree a financial penalty’, the deal must ultimately be sanctioned by the court.  And UK courts, Urofsky and Rickard explain, have ‘vigorously resisted any perceived intrusion by the government into their role in sentencing’.  Thus, a plea agreement ‘may not provide a company with any assurance of certainty’. 

Still, as Mr Leist correctly points out, the courts are not always averse to the terms of a negotiated plea agreement.  In the BAE Systems case, for example, Mr Justice Bean was again called on to review the terms of a plea agreement.  In that case, the Justice stated that he had ‘…no power to vary or set aside the settlement agreement … [nor could he] sentence for an offence which the prosecution has chosen not to charge.’ 

Comparing Mr Justice Bean’s seemingly incongruous decisions, the distinction seems to lie in the charges brought by the prosecution.  So long as the SFO and the MOJ have prosecutorial discretion to determine what crimes are charged, they are not entirely powerless to determine the outcome.  While the SFO and MOJ might find it difficult to guarantee the courts will adopt the terms of a negotiated plea agreement, they can control what charges they bring.  As Justice Bean concluded in BAE Systems, the courts cannot ‘sentence for an offence which the prosecution has chosen not to charge.’ 

It is worth noting that the SFO recently experienced success entering into a settlement agreement in a civil context.  As McGuireWoods’ Rose Parlane reported, in July the SFO announced it has entered into an £11 million settlement with Macmillan Publishers.  SFO Director Richard Alderman was clearly pleased with the outcome and, as Rose concludes, ‘Given the success of the SFO’s approach in reaching a quick and cost efficient outcome through cooperation and the use of the civil recovery route as opposed to a criminal prosecution, we can expect to see more of the same’. 

Of course, if there are any lingering doubts about the enforceability of settlement agreements, the SFO and MOJ can take complete control of the process in any case through the use of deferred and/or non-prosecution agreements (discussed in our last blog).  This would seem to take all of the guess work out for prosecutors eager to encourage corporates to self-report and meaningfully participate in investigations.  Still, Urofsky and Rickard insist, ‘[t]he SFO has already show signs of a willingness to move towards that model’. 


The McGuireWoods Guest Bloggers are Robert Plotkin, a partner based in McGuireWoods LLP’s Washington and New York offices and head of the firm’s SEC Enforcement Defense group, and Kurt E. Wolfe, an associate based in McGuireWoods LLP’s Washington office and a member of the firm’s Government, Regulatory and Criminal Investigations department.