SEC Chairman Annouces Aggressive Settlement Policy

SEC Chairman Mary Jo White has announced a new policy involving the Commission’s enforcement actions.  In some cases the the Enforcement staff will require defendants to admit wrongdoing as a condition of settling civil enforcement actions.  This is a significant change from the agency’s traditional approach of settling cases with neither the admission or denial of wrongdoing.

In the past the SEC Enforcement Division typically brought an enforcement action in federal court seeking an injunction against further securities law violations and seeking disgorgement and a monetary penalty.  The parties would agree to a settlement.  The court filings would include the agency’s complaint and a settlement agreement in which the defendant did not admit or deny the wrongdoing charged but instead agreed to the injunction and monetary relief.

The first change in the SEC’s settlement position took place in 2012 after criticism from Congress and federal courts that the neither admit nor denial policy was too lenient and did not serve the public well.  At that time the SEC announced that the neither admit nor deny policy would not apply to cases in which civil defendants have admitted to or been convicted of criminal charges.  This early change was clearly cosmetic as the higher criminal burden of proof meant that the civil admission added virtually no consequences to the defendant.

The current change could have a significant effect.  In cases where the defendant admits wrongdoing in the settlement, that admission could serve as res judicata in private civil actions alleging the same wrongdoing by the defendants.

The SEC Chairman said that the Commission would determine whether to require the admission of wrongdoing on a case-by-case basis.  The targets of the new requirement will be defendants who engaged in egregious intentional fraudulent conduct or took actions that resulted in widespread harm to investors.

The new requirement could result in the litigation of many more SEC actions.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.