Reversing a long standing corporate-friendly practice, the Securities and Exchange Commission (SEC) will no longer allow corporate fraudsters to settle civil fraud charges by paying a fine without admitting wrongdoing. More specifically, the SEC will no longer allow defendants to say they neither admit nor deny civil fraud or insider trading charges when, at the same time, they admit to or have been convicted of criminal violations. However, the SEC will still use the “neither admit nor deny” settlement language when the SEC alone reaches a civil settlement, absent related criminal charges, which accoounts for a large majority of SEC settlements.
Recenlty, in November, a Federal District Court judge in New York specifically and sharply criticized the SEC’s use of this “neither admit nor deny” settlement language and rejected the SEC’s proposed $285 million settlement with Citigroup for securities fraud. According to Judge Rakoff, the “neither admit nor deny” settlement language, contained in the Citigroup settlement, deprived the court of the facts necessary to determine if the punishment was adequate because it meant that there were no established facts on which to base a decision. See Pomtalk Post entitled “Judge Rejects ‘Pocket Change’ ‘No-Admit/No-Deny’ SEC Settlement with CitiGroup", Dec. 05, 2011.
See also New York Law Journal article entitled “Rakoff's Decision in 'SEC v. Citigroup': What's All the Fuss About?”, Jan. 17, 2012, by Stanley M. Grossman.
For more information, in general, see NYT article entitled “S.E.C. Changes Policy on Firms’ Admission of Guilt” and WSJ article entitled “SEC Modifies 'Confirm Nor Deny'”.