Mary Jo White Lays Out Criteria for Admissions in SEC Settlements

Securities and Exchange Commission (SEC) chair Mary Jo White today laid out her criteria for when the SEC will allow neither admit nor deny settlements and when it won’t.

In a speech to the Council of Institutional Investors fall conference in Chicago, White identified four triggering factors that might require admissions by corporate or individual defendants — cases where a large number of investors have been harmed or the conduct was otherwise egregious, cases where the conduct posed a significant risk to the market or investors, cases where admissions would aid investors deciding whether to deal with a particular party in the future, and cases where reciting unambiguous facts would send an important message to the market about a particular case.

“An effective enforcement program is the recognition that there are some cases where monetary penalties and compliance enhancements are not enough,” White said. “An added measure of public accountability is necessary, and in those cases we should demand it.”

“Until recently, the SEC – like most other federal agencies and regulators with civil enforcement powers – settled virtually all of its cases on a no-admit-no deny basis.  Generally, a party would pay a hefty penalty and agree to an injunction against future misconduct, but neither admit nor deny the wrongdoing asserted by the SEC in a court complaint or set forth as findings in an order instituting administrative proceedings.

“In most cases, that protocol makes very good sense.  It makes sense because the SEC can get relief within the range of what we could reasonably expect to achieve after winning at trial.”

“By settling, the agency is able to eliminate all litigation risk, resolve the case, return money to victims more quickly, and preserve our enforcement resources to redeploy to do other investigations – ordinarily, a significant win-win.   But sometimes more may be required for a resolution to be, and to be viewed as, a sufficient punishment and strong deterrent message.”

“In 2012, the SEC changed the no-admit-no-deny language as it applied to settlements with parties that have pled guilty in a related criminal action.  In these cases, we now explicitly reference these admissions in the SEC settlement.  It was a first step towards greater accountability, and a good one.”

“But when I started at the SEC, I re-examined our approach and concluded that there are certain other cases not involving any parallel criminal case where there is a special need for public accountability and acceptance of responsibility.”

“As you might expect, much of my thinking on this issue was shaped by the time I spent in the criminal arena, where courts cannot accept a guilty plea without the defendant first admitting to the unlawful conduct.  Anyone who has witnessed a guilty plea understands the power of such admissions – it creates an unambiguous record of the conduct and demonstrates unequivocally the defendant’s responsibility for his or her acts.”

But what about resolutions that do not require a guilty plea?

“In 1994, when I was a U.S. Attorney, I entered into the first-ever deferred prosecution agreement (DPA) with a company – a tool the Department of Justice frequently uses today.  Essentially, a DPA is an agreement that the government will file a criminal charge, but defer its prosecution for a period of time during which the party must demonstrate good behavior and satisfy the other terms of the agreement.  These terms can include very significant payments of money, enhanced compliance requirements, and sometimes an outside monitor.”

“Back in 1994, there was no template for those agreements.  Nothing required an admission or confession of wrongdoing.  But I decided in that particular case that a public admission of wrongdoing was required for the resolution to have sufficient teeth and public accountability. So considering this history, it should not be surprising that I would follow that same approach in my new role as chair of the SEC.”

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