On November 12, 2013, the SEC announced that it entered into its first deferred prosecution agreement (“DPA”) with an individual. DPAs are intended to encourage cooperation with the SEC as it investigates wrongdoing. In return for such cooperation, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.
According to the DPA with Scott Herckis, he was administrator for the Heppelwhite Fund LP, which was founded and managed by Berton M. Hochfeld. With the information and cooperation provided by Herckis, the SEC was able to file an emergency enforcement action against Hochfeld for misappropriating money from his hedge fund and providing false account statements to investors. The SEC was able to freeze the fund’s assets as well as Hochfeld’s. In October 2013, a federal court approved a $6 million distribution to harmed Heppelwhite investors. After Herckis resigned from the fund, he approached the government with information about Hochfeld and problems with Heppelwhite’s accounting records. Herckis voluntarily produced documents and described to the SEC how Hochfeld defrauded investors. As a result, the SEC was able to file the emergency action within weeks.
Under the DPA, which provides that Herckis aided and abetted Hochfeld’s securities law violations, Herckis must comply with certain requirements. He cannot serve as a fund administrator or provide services to any hedge fund for five years. In addition, he cannot associate with any broker, dealer, investment adviser, or registered investment company. Herckis must also disgorge about $50,000 which will be added to the Fair Fund that has been created to help compensate investors.