Futile Quest for SEC Cooperation Credit?: Examining HeadSpin as a Framework for Optimal Remediation Measures (Part One of Two)

Taking appropriate remedial steps and cooperating with an SEC investigation could earn fund managers “credit” that results in lesser charges and/or lighter penalties. It can be difficult, however, for fund managers to assess the specific remedial action and level of cooperation needed. That is particularly true when considering a complaint filed by the SEC against HeadSpin, Inc. (HeadSpin) in January 2022. Notably, the SEC did not seek a civil penalty against HeadSpin. In the press release accompanying the settlement, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, cited the company’s efforts and behavior as “offer[ing] an excellent example” of self-remediation and cooperation during an SEC examination. Similar favorable treatment and credit is extremely rare, however, in matters involving private fund managers, which makes HeadSpin worth evaluating more closely. This two-part series uses HeadSpin as a prism through which to examine the viability of self-remediation and cooperation, and if certain distinctions prevent fund managers from earning optimal benefits promised by the SEC for such behavior (e.g., reduced/no civil penalty, declination to enforce, etc.). This first article summarizes the operative facts in HeadSpin and suggests an array of self-remediation and cooperation measures the Commission may recognize to reduce penalties. The second article will discuss factors that may prevent fund managers from receiving full cooperation credit regardless of how fulsome their remediation efforts are, along with best practices suggested by experts. See “Electronic Communications, Cooperation Standards and Other Emerging Trends in the SEC’s Oversight of Private Funds” (Jan. 12, 2023).

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