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SEC Tightens Loop on Guilt-Free Settlements

The U.S. Securities and Exchange Commission (SEC) announced that it began re-examining its approach to settlements, including the no-admit, no-deny policy, and where admissions of guilt “could be in the public interest.”  Those situations include cases in which admissions might safeguard against risks posed by the defendant to the investing public or when the defendant obstructed the SEC’s investigative processes. 

The SEC usually settles its cases without the defendants admitting guilt, but the agency’s settlements also prohibit the defendants from denying the allegations, the letter said.   

The U.S. Securities and Exchange Commission (SEC) announced that it planned to change its no-admit, no-deny policy for select cases involving misconduct that harmed large number of investors.  The potentially groundbreaking policy change, of which the SEC informed its enforcement team in a Monday letter, comes in the wake of federal judges criticizing the SEC for allowing major financial institutions to settle massive litigation without admitting or denying any wrongdoing. 

“We are going to, in certain cases, be seeking admissions going forward,” White said at the Wall Street Journal’s annual CFO Network event, according to Reuters.  “I think … public accountability in particular kinds of cases can be quite important and if we don’t get them, then we litigate them.” 

“This is not a criticism of the past practice and having ‘no admit, no deny’ settlement protocols in your arsenal as a civil enforcement agency … (is) critically important to maintain,” she reportedly said. 

The SEC would require admissions or acknowledgment of misconduct if the agency deems them critical and would litigate the cases if the defendants refuse to confess, according to the letter. 

“While the no admit/deny language is a powerful tool, there may be situations where we determine that a different approach is appropriate,” the agency said in the letter.  “There may be certain cases where heightened accountability or acceptance of responsibility through the defendant’s admission of misconduct may be appropriate, even if it does not allow us to achieve a prompt resolution.” 

The letter added, however, that insisting upon admissions in certain cases could delay the resolution of the cases and that many cases wouldn’t meet the criteria for admissions. 

“For these reasons, no-admit-no-deny settlements will continue to serve an important role in our mission and most cases will continue to be resolved on that basis,” the letter said.  “We will also continue to strongly defend our discretion to reach such settlements in response to inquiries from courts.” 

Experts predicted Tuesday that the change in SEC policy could lead to more high-profile securities trials but also jeopardize settlements.

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