Regulation

The SEC Stands by a Controversial Phrase


The Securities and Exchange Commission has been criticized by lawmakers and judges for its policy of allowing companies and individuals to settle civil charges without admitting or denying guilt. SEC Enforcement Director Robert Khuzami has defended the practice, saying it produces speedier resolutions. Now the agency has altered its policy—slightly—in a way that does little to address the critics’ complaints.

On Jan. 6 the SEC said it was modifying its boilerplate settlement language to require that defendants admit wrongdoing when they have already done so in parallel criminal proceedings. In cases where there has not been a criminal conviction, “neither admit nor deny” will still be the rule. “The new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in criminal cases,” Khuzami said in a statement. The SEC files only civil cases. It can refer cases to the Justice Dept. for criminal prosecution.

U.S. District Court Judge Jed S. Rakoff drew attention in November when he cited the “neither admit nor deny” language in rejecting the agency’s proposed $285 million settlement with Citigroup (C) over claims the bank misled investors in a financial product involving risky mortgages. The policy change, which has been under consideration for several months, is “separate and unrelated to” Rakoff’s ruling in the Citigroup matter, Khuzami said. He had defended the SEC’s policy as recently as December, contrasting it with the practices of other federal agencies, such as the Federal Trade Commission, which have resolved cases while allowing accused parties to deny wrongdoing.

Few of the major cases the SEC has brought as a result of the financial crisis have had parallel criminal proceedings. The policy wouldn’t have affected the settlements the agency reached with Goldman Sachs (GS) and JPMorgan Chase (JPM), for instance, over claims they misled investors in financial products linked to souring home loans.

The new policy is “a big non-event,” says Stephen J. Crimmins, a former SEC attorney who is now a partner at K&L Gates in Washington. “If you’ve admitted to conduct in a criminal case, what difference does it make to do it again in a civil case? It makes the commission’s settlement more understandable for the general public, but it has no real world impact at all.”

The bottom line: The SEC’s move to modify its boilerplate settlement language is more cosmetic than substantive.

Gallu is a reporter for Bloomberg News in Washington.

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Companies Mentioned

  • C
    (Citigroup Inc)
    • $52.39 USD
    • 0.03
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  • GS
    (Goldman Sachs Group Inc/The)
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