The SEC made some news yesterday at the Wall Street Journal CFO Network conference, as Chairman Mary Jo White announced that the agency will now begin requiring admissions of wrongdoing from defendants to settle enforcement actions in certain circumstances. The announcement is a significant change in course from the SEC's long-standing--and increasingly criticized--policy of allowing defendants to enter into "neither-admit-nor-deny" settlements of such actions.

As discussed here, White stated in a letter to Sen. Elizabeth Warren earlier this month that the SEC's "neither-admit-nor-deny" settlement policy was under active review "to determine what, if any, changes may be warranted and whether the SEC is making full appropriate use of its leverage in the settlement process." According to The Washington Post, White stated at the conference that certain cases require "public accountability," either through a settlement or litigation. 

The Post reported that in an email sent to SEC staff this week, co-Enforcement directors Andrew Ceresney and George Canellos announced that "cases in which the defendant engaged in 'egregious intentional misconduct' may justify requiring an admission, as would the obstruction of an SEC investigation or 'misconduct that harmed large numbers of investors.'”  White emphasized that "neither-admit-nor-deny" settlements would still be a “major, major tool” used by the SEC in the majority of cases. 

James Cox, a law professor at Duke University, told The Wall Street Journal that the impact of required admissions in SEC cases could be "immense," as such admissions can then be used to establish liability in private securities class actions and lawsuits. This type of exposure may cause companies to fight the SEC in court rather than settle.

Topics