SEC Takes "Neither Admit Nor Deny" Settlements Off the Table...Sometimes
The Securities and Exchange Commission announced on Friday, January 6th a significant new policy: companies that admit to criminal charges in securities fraud matters will no longer be able to settle SEC charges without admitting guilt in enforcement proceedings stemming from the same conduct. The SEC’s Director of Enforcement, Rob Khuzami, reportedly explained:
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.
The Wall Street Journal’s Joe Palazzolo explains, “The policy change eliminates what had been a strange feature of parallel criminal and civil proceedings. Even when companies admitted to broad criminal violations in settlements with the Justice Department, which carry greater consequences than civil charges, they weren’t required to make an admission in their settlements with the SEC.”
As Law360 reports, Khuzami stressed that the policy change will apply only in a minority of cases where there are parallel criminal proceedings arising from the same misconduct. And, importantly, SEC settlements will not require companies to admit to broader misconduct than admitted in the concurrent criminal proceedings.
Many do not view the new directive as a significant shift in SEC policy. John Carney of CNBC, for example, insists that “the change will have very little impact on most of the cases the SEC brings.” Carney believes most companies seeking to settle SEC matters can still avail themselves of the “neither admit nor deny” language, because “[o]nly companies that admit or are convicted in a criminal court will actually be denied those familiar words of settlement blather.”
Still, for companies faced with parallel enforcement proceedings, the shift in policy may in fact shape their litigation strategy. Companies in such a situation should consider, first, the timing of any settlement with the Commission. Settlement on a “neither admit nor deny” basis may be available until the company admits guilt in the parallel criminal matter. Thus, settling with the SEC first may present an opportunity to secure settlement on favorable terms.
Second, for companies forced to admit guilt in an SEC settlement under the new policy, it is essential to make sure the admission covers the same conduct or elements described in the criminal matter. While the SEC insists it will not ask companies to admit to broader misconduct, it is ultimately up to the companies to ensure any admission is sufficiently narrowly tailored.