SEC staffer near deferred prosecution agreement in stock case

Deferred prosecution agreements are often approved for major corporations but rarely individuals

Deferred prosecution agreements (DPAs) aren’t only for businesses, as U.S. prosecutors have entered into a DPA with a Securities and Exchange Commission (SEC) staffer accused of unlawfully holding stocks and lying about his portfolio in court.

Manhattan U.S. Attorney Preet Bharara’s office announced in a late February court filing that it has reached a potential DPA with SEC staffer Steven Gilchrist pending a probation office investigation. The court filing did not give any indication of the nature of the DPA, other than to request a delay in proceedings.

According to The Wall Street Journal, the New York-based Gilchrist was charged with three counts of making false statements regarding his financial holdings. He claimed that all of his stock holdings were in alignment with the SEC’s employee rules, but in actuality, he held shares of six companies that SEC staffers are barred from holding.

Deferred prosecution agreements are often approved for major corporations — such as HBSC’s agreement with the U.S. government last August — but rarely are DPAs approved for individuals.

DPAs also carry with them some risk if in-house counsel are not careful. As Valecia McDowell, John Fagg, and Kimberly Cochran wrote in a June 2012 InsideCounsel column, some parties that enter into the agreements “find themselves forced to waive the attorney-client privilege, restructure their business, turn over work attorney product, pay hefty fines and carry out an array of other stipulations required by the prosecutor or enforcement division of a regulating agency.”

The authors also wrote that the public perception of DPAs offering a financial benefit is misconceived. Even after entering a DPA, many parties still have paid fines of hundreds of millions of dollars related to misconduct.

 

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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