Benefits of Cooperation Justin D. Hoogs, Justin D. Mayer, and Kayvan B. Sadeghi
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CHAPTER 6
Benefits of Cooperation
Justin D. Hoogs, Justin Mayer and Kayvan
B.Sadeshi
The government strongly encourages potential insider trading defendants
to cooperate with investigations. Both the Department of Justice (DOJ) and
the Securities and Exchange Commission (SEC) have explicit policies and
guidelines that profess to weigh cooperation heavily when making charg-
ing and sanctioning decisions, and cooperation is also expressly taken into
account under the Federal Sentencing Guidelines.1
Fostering cooperation is clearly in the government’s best interest.
The benefits cooperators provide to the government were on full display
in the scores of prosecutions arising out of Operation Perfect Hedge in
the Southern District of New York. The success of that operation relied
heavily on evidence secured by cooperator Jason Pflaum’s agreement to
wear a wire, implicating multiple other defendants, as well as the coop-
erating testimony of Kumar and Goelagainst Raj Rajaratnam, to name
just a few examples.2
From the perspective of certain potential cooperators, however,
assessing the risks and benefits of cooperation became more complicated
after the Second Circuit’s 2014 reversal of the insider trading convictions
of ToddNewmanand Anthony Chiasson, followed by the Supreme Court’s
1 See 2013 Federal Sentencing Guidelines Manual at §5K1.1 (Nov. 1, 2013), http://www
.ussc.gov/Guidelines/2013_Guidelines/Manual_HTML/5k1_1.htm.
2 See Chapter 5, section 1(A).
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CHAPTER Benefits of Cooperation
2016 affirmance of the conviction of Bassam Salman.
3
Analysis of insider
trading prosecutions between 2010 and 2014 suggests that cooperating
witnesses received tangible benefits—including little to no prison time
and reduced fines—as compared with those who either went to trial or
entered pleas without cooperating. However, until 2014, the U.S. At-
torney’s Office for the Southern District of New York—the epicenter of
the U.S. government’s insider trading enforcement efforts—enjoyed an
extended winning streak that made the benefits of cooperation appear
particularly stark. That streak ended in 2014 when Rengan Rajaratnam
was acquitted and the Second Circuit reversed the insider trading convic-
tions of Newmanand Chiasson. That decision prompted other appeals,
vacated and dropped pleas, and dropped charges. The Supreme Court’s
narrow decision in Salman further added to the uncertainty. As a result,
the potential outcomes with or without cooperation are now much less
clear than they once appeared, making risk assessment a highly case-
specific endeavor.
This chapter sets forth the legal framework for assessing cooperation,
analyzes the impact of cooperation on both criminal sentences and civil
penalties from 2010 to 2014, and considers whether historical data remain
an accurate gauge for cost–benefit analysis going forward.
1. Cooperating with the Department of
Justice
The DOJ considers a criminal defendant’s willingness to provide timely
and useful cooperation when making charging recommendations and
in deciding whether to move for a downward departure at sentencing.4
Section9-27.230 of the U.S. Attorneys’ Manual (“Initiating and Declining
Charges—Substantial Federal Interest”) lists seven factors to consider when
deciding whether to initiate charges, including “6. The person’s willingness
to cooperate in the investigation or prosecution of others.”
A. The Person’s Willingness to Cooperate
A person’s willingness to cooperate in the investigation or prosecution of
others is an appropriate consideration in the determination of whether a
3 United States v. Newman, 773 F.3d 438 (2d Cir.; Salman v. United States, 137 S. Ct. 420 (2016).
4
See U.S. Attorneys’ Manual at 9-27.230 and 9-27.740, http://www.justice.gov/usam
/usam-9-27000-principles-federal-prosecution#9-27.230.
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