Yesterday, David L. Sokol, a former top executive at Berkshire Hathaway, received some great news from the SEC. The agency reportedly advised Sokol's lawyer that it had completed its inquiry into possible insider trading by Sokol in advance of a Berkshire acquisition, and had decided not to pursue a civil enforcement action. Counsel for Mr. Sokol, subsequently offered several observations about the SEC's decision not to pursue a case:

DealBook reported that Sokol's counsel said he was happy that his client was “exonerated;” 

Sokol's counsel told the WSJ that "[t]here has been a thorough legal analysis and factual scrutiny and the SEC has concluded, as we have always maintained, that David Sokol never did anything wrong;"

Reuters reported that Sokol's counsel said Sokol has been "completely cleared" as there was no evidence against his client.

Under Securities Act Release No. 5310, the SEC may, in its discretion, advise a person under inquiry that its formal investigation has been terminated and that no enforcement action has been recommended to the Commission. Release No. 5310 states, however, that 

Even if such advice is given, however, it must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staffs investigation of that particular matter. All that such a communication means is that the staff has completed its investigation and that at that time no enforcement action has been recommended to the Commission. (emphasis added)

Release No. 5310 also adds that the most such a communication can mean is that, "as of its date, the staff of the Commission does not regard enforcement action as called for based upon whatever information it then has" and that this conclusion may be based upon various reasons, such as workload considerations. In short, as also emphasized in the SEC's Enforcement Manual (page 34), the SEC is not in the business of "exonerating" people.

Back in 2004, as I discussed here, the SEC advised AGCO Corp. that its informal inquiry into the company's accounting practices had "been terminated, and no enforcement action has been recommended to the Commission." That same day, AGCO Corp.'s CEO was quoted as stating that "It's a good day…. When you're sure that you haven't done anything wrong — but to the outside world it looks like you're guilty of something — it's a real relief to be vindicated from any accusations." He added that "[t]hey confirmed that all procedures are accurate and in accordance with prescribed accounting procedures…. The issue, as far as we're concerned, is closed and we can now devote more time to the management of the business and the company."

The next day, however, AGCO issued a press release ("AGCO Corrects Reports Regarding Letter Received from SEC") with a very different quote from its CEO:

The termination of the SEC inquiry does not indicate that our accounting procedures or disclosures are correct or that we have been vindicated. That is not what the SEC letter said, and I want to correct what was reported in the media. All the letter said was that the inquiry was terminated. Neither that letter nor anything else said by the SEC staff in any way suggested that AGCO's accounting or related disclosures are correct.

A publicly-held company like AGCO has a much greater incentive that an individual such as Mr. Sokol to play it safe in how it characterizes a message from the SEC that an investigation has been terminated and no enforcement action has been recommended to the Commission. But it will still be interesting to see if Mr. Sokol chooses to back down at all from his current position that he has been "exonerated" and "cleared" by the SEC.