The Financial Report — Volume 2, No. 12

Earlier this week, US Securities and Exchange Commission (SEC) chairman Mary Jo White informed the SEC’s Enforcement Division staff that the SEC will begin requiring defendants to admit guilt in order to settle some civil lawsuits. This policy change follows harsh criticism of the SEC by certain federal judges for allowing financial institutions to settle massive securities litigation without admitting or denying any wrongdoing.

In its letter to its enforcement team, the SEC said that it was changing its no-admit, no-deny policy for select cases involving misconduct that harmed large numbers of investors. The letter reportedly said: ‘While the no-admit/-deny language is a powerful tool, there may be situations where we determine that a different approach is appropriate.’ The letter continued: ‘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 SEC often settles its cases without a defendant’s admission of guilt. Typically, however, the SEC’s settlements also prohibit a defendant from denying the allegations. Although the policy change may lead to more high-profile, precedent-setting securities trials, it will likely adversely affect the frequency and speed with which the SEC settles certain cases. The majority of SEC matters are resolved through settlement. Large institutional defendants are going to be very reluctant to admit wrongdoing when facing potential criminal liability or potential additional civil liability, such as customer class-action claims…

If you are registered and logged in to the site, click on the link below to read the rest of the DLA Piper briefing. If not, please register or sign in with your details below.