June 20, 2013

SEC to “Incrementally” Limit Ability to Settle Without Guilt Admission

On Tuesday, SEC Chair White make remarks – in a speech unpublished so far – indicating that Enforcement’s “settlement without admission” policy will undergo an “incremental” change. The change will only apply to “certain” cases – and decisions on when admissions will be required will be made on a case-by-case basis.

Here’s a Cooley news brief from Cydney Posner:

The Wall Street Journal is reporting that, at a WSJ CFO Network conference, SEC Chair Mary Jo White said that, while the ability to settle cases without insisting on an admission of guilt remains an important tool, the SEC plans to “require certain defendants to admit to wrongdoing as a condition of settling securities-fraud charges.” Ms. White said that the new policy “would apply to only a select number of cases, and suggested they would have to involve allegations of egregious fraud or significant harm to investors.” The Staff will be developing guidance regarding the types of cases that would require admissions of guilt. The SEC has already changed its long-standing practice by precluding defendants from denying guilt when, at the same time, they have admitted to, or have been convicted of, criminal violations in parallel cases brought by the Justice Department.

The SEC’s long-standing position that allowed defendants in settlements to neither admit nor deny wrongdoing has come under recent scrutiny. For example, in considering the settlement in the Citigroup case, Judge Rakoff issued a blistering criticism of the practice. In addition, the House Financial Services committee had indicated at one time that it was planning to hold hearings to examine the practice. The article reports that another federal judge “questioned the practice in March, saying it is ‘counterintuitive’…. In May, Sen Elizabeth Warren (D., Mass.) said she worried the policy could undercut regulators’ ability to crack down on financial fraud.”

SEC officials’ rationale for the SEC’s historic position has been that “pursuing litigation solely to obtain an admission of guilt isn’t likely to result in greater penalties, noting that the agency’s enforcement attorneys only recommend the commission settle a case when they believe they have negotiated for roughly the same amount in penalties that they could reasonably expect to win at trial. Officials also have cited the agency’s limited resources.”

Here’s related articles from Reuters, Washington Post and Cady Bar the Door Blog (and here’s a video clip of Harvey Pitt). This follows indications that SEC Chair White was reviewing the SEC’s policy in this area from a few weeks ago.

SEC Speeches Posted Going Back to 1929!

A surprising element of this announcement is that it wasn’t made in a scripted speech – although the speech may eventually be posted. It’s been a while since a SEC Chair made an announcement of this magnitude that wasn’t in writing. Of course, there is no requirement to post a speech – but it helps spare the SEC’s Office of Public Affairs some phone calls.

As an aside, I just realized that the SEC has posted speeches going way, way back – back as far as 1929, four years before the SEC was even born! Here is the oldest speech posted – from a conference held in French Lick, Indiana, the home of Larry Bird! I guess they weren’t worried about holding a conference in a city with a major airport back then…

SEC Enforcement Co-Chief Calls ‘Em Like He Sees ‘Em

Meanwhile, this Morrison & Foerster memo starts off with: “Led by a new team of co-directors, the Enforcement Division of the SEC is poised to create new initiatives dedicated to efficiency, greater staff discretion and specialized areas of focus. This was co-director George Canellos’ message as he addressed a panel of SEC alumni and other practitioners sponsored by the Federal Bar Association’s Securities Law Section on June 17th. While Canellos laid out some ambitious plans for the SEC, he stressed the limits of those plans and the challenges that the agency may face in implementing them. And he also tried to satisfy the attendees’ desires to hear some Division ‘inside baseball’.”

– Broc Romanek