Coming off of the recent multimillion dollar settlement, which the courts refused to approve in part because the plaintiff neither admitted nor denied the charges, the Securities and Exchange Commission (SEC) has announced that it will stop letting defendants settle civil charges in which they “neither admit nor deny” guilt when the civil litigation is accompanied by parallel criminal litigation where the same defendants actually do admit guilt.
On January 6, the Commission’s Enforcement Director Robert Khuzami put it this way:
The new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in the criminal cases.
In the case that brought this issue to a head, a U.S. District Judge said the SEC’s policy of allowing settling defendants to neither admit nor deny allegations made it hard for judges to determine whether the settlements they are asked to approve are justified by the facts. In the case in point, only civil charges were brought; there was no related criminal case.
Applies Only to SEC Cases With Parallel Criminal Charges
While the change in policy will take effect right away, it won’t apply to the Citigroup case — or even to most SEC settlements. It will affect only those SEC cases which have parallel criminal charges in which the company or person admits guilt in resolving the criminal charges.
It therefore remains to be seen how much of an impact the change will have.
When defendants admit to criminal charges, which carry greater potential penalties than civil allegations, they are already exposing themselves to increased civil liability in shareholder lawsuits. Having to admit guilt in related civil litigation involving the SEC which arises from the same set of facts shouldn’t worsen the situation. But it’s hard to see how this change is going to help judges in reviewing the majority of civil settlements.
The SEC says it has been considering the change since last spring.
We haven’t crossed this bridge, but we’ve certainly come to it…