With Settlements, Will the SEC Make Defendants Admit Guilt?

Reporting on Mary Jo White’s speech at a Wall Street CFO Network function, the Washington Post notes her comments about the long-simmering topic of failure of securities law violators to admit guilt when they settle with the SEC.  As a matter of practice, the SEC has routinely allowed defendants to settle cases “without admitting or denying wrongdoing.”  In light of public criticism and some pointed criticisms by judges handling these type settlements(See my December 15, 2011 blog post ), White wants to draw a sharper distinction between those cases where clear-cut misconduct is shown and those cases where wrongdoing or guilt is less clear.

The Washington Post article notes that “[i] an e-mail sent to the SEC staff earlier this week, the co-directors of the enforcement division said 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.”

Despite public protestations, and some courts’ misgivings about allowing defendants to pay large fines to settle cases without admitting wrongdoing, wholesale changes in the settlement policy are unlikely.  Further, district courts have limited authority to change an executive branch agency’s decision to settle a claim, including the SEC’s “neither admit nor deny” policy.

Whether a sharper line is drawn or not, such settlements still serve an important public policy.  Similar to the rationale for plea bargaining in criminal cases, without being able to settle without admitting guilt, many defendants would not settle.   Some defendants would rather risk going to trial than admit guilt that might leave them open to other lawsuits, denial of insurance coverage, or higher insurance premiums.  Still other defendants,  lacking resources, might simply consider walking away from these cases.  The result — long investigations and trials with even harsher fines and sanctions that may go uncollected and waste limited resources.