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Home | BakerHostetler

SDNY Previews New Corporate Self-Disclosure Policy and Heightened Individual Accountability

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The U.S. Attorney’s Office for the Southern District of New York (SDNY or the Office) is emphasizing rapid resolutions and declinations for companies that promptly self-report and cooperate.

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Emerging markets and technologies – including digital assets and prediction markets – will be evaluated under existing criminal statutes based on substance, not novelty.

Companies that decline to self-report face significant enforcement risk, as SDNY signaled a willingness to pursue both corporations and responsible individuals aggressively.

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Speaking at the annual Securities Enforcement Forum in Manhattan on Feb. 5, U.S. Attorney for SDNY Jay Clayton outlined the Office’s current enforcement posture toward corporate and financial crime. His message combined incentives for cooperation with a clear warning: While SDNY is prepared to offer a “big carrot” to companies that self-report and remediate misconduct, it will also wield a “big stick” against those that do not.

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Clayton encouraged companies to proactively cooperate with law enforcement, emphasizing the Office’s goal of “get[ting] bad people out of hopefully good companies” and securing non‑prosecution agreements with cooperating companies as quickly as possible. At the same time, he warned that “we are watching” both companies and individuals for potential market misconduct.

Consistent with recent Department of Justice (DOJ) policy trends emphasizing voluntary self-disclosure and cooperation, SDNY described a framework designed to accelerate resolutions for qualifying companies while preserving a strong focus on prosecuting culpable individuals.

Fast-Track Declinations for Cooperating Companies

Assistant U.S. Attorney Andrew Thomas, who co-leads SDNY’s Securities and Commodities Fraud Task Force, explained that formal guidance is forthcoming regarding an expedited process for companies that voluntarily self-report misconduct. Under this approach, companies that promptly disclose wrongdoing, commit to meaningful remediation, cooperate fully and make victims whole may be eligible for a conditional declination within a matter of weeks. Once a company satisfies its agreed-upon obligations, SDNY intends to finalize the declination and close the matter without prolonged investigations or multiyear uncertainty.

At present, SDNY indicated that this expedited process will apply to financial crime matters within the Office’s jurisdiction. The stated objective is to incentivize early disclosure and cooperation while conserving prosecutorial resources for cases involving recalcitrant companies or egregious misconduct.

The ‘Big Stick’: Risks of Nondisclosure

Clayton cautioned that companies choosing not to self-report do so at their own peril. Recent enforcement actions in the district, such as the <a href="https://www.justice.gov/usao-sdny/pr/okx-pleads-guilty-violating-us-anti-money-laundering-laws-and-agrees-pay-penalties">$500 million plea deal with cryptocurrency exchange OKX</a>, illustrate the significant financial and operational consequences that can follow criminal charges. Even companies that initially secure deferred or non-prosecution agreements may face severe penalties if they fail to meet ongoing cooperation and disclosure obligations, as <a href="https://www.justice.gov/usao-sdny/pr/ericsson-plead-guilty-and-pay-over-206-million-following-breach-2019-fcpa-deferred">Ericsson did when the company breached its deferred prosecution agreement in 2023</a> and was forced to pay more than $200 million in penalties.

This enforcement history frames Clayton’s warning that declining to cooperate can materially worsen outcomes for both companies and individuals.

Emerging Technologies Are Not a Safe Harbor

Addressing emerging sectors such as prediction markets and digital assets, Clayton stuck to a back-to-basics approach and warned that prosecutors will assess the function and economic reality of products and conduct, applying existing fraud and market manipulation statutes regardless of technological novelty. Using an example of a prediction market conspiring to rig a golf game, Clayton remarked, “That’s a crime. Because it’s a prediction market doesn’t insulate you from fraud.”

Clayton struck a similar tone on the topic of digital assets, stating that the Office would look at the function of the asset at issue and continue to apply current laws to new markets. While acknowledging the importance of the crypto market, Clayton expressed his view that “this sort of absolutist approach of some members of the crypto community that ‘you should leave us all alone’ and caveat emptor should apply? It’s absurd, it really is.”

For companies in emerging industries, Clayton’s remarks underscore the importance of documenting product design, platform mechanics and market integrity controls and evaluating them against established legal standards rather than perceived regulatory gaps.

Practical Considerations for Companies and Executives

In light of SDNY’s emphasis on proactive self-disclosure and individual accountability, companies should reassess the effectiveness of their internal reporting, escalation and investigation protocols. Leadership should ensure that potential misconduct is identified early, investigated promptly and evaluated for potential self-reporting.

Executives should also be prepared for scrutiny of individual conduct, including actions and inaction by managers and supervisors. Investments in strong compliance governance, clear documentation and readiness to engage with law enforcement can meaningfully influence outcomes if issues arise.

The BakerHostetler White Collar, Investigations and Securities Enforcement and Litigation team is composed of dozens of experienced individuals, including attorneys who have served in the DOJ and at the U.S. Securities and Exchange Commission (SEC). Our attorneys include three former U.S. attorneys, former assistant U.S. attorneys and unit chiefs, and partners who have served in the SEC’s Division of Enforcement and the SEC’s Office of the General Counsel. Our team has extensive experience in defending regulatory investigations and litigation and in providing compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.

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