Verity Winship on Denials and Admissions in SEC Civil Enforcement

It used to be that the Securities and Exchange Commission (SEC) would settle all of its cases without requiring corporations to admit wrongdoing.

Verity Winship

Not only that, the corporations could deny wrongdoing.

Then in the 1970s, the SEC said – you can’t deny.

And thus the ubiquitous language in almost every SEC settlement – the company neither admits nor denies the charges.

Then the SEC came under major public pressure to force admissions.

In 2012, the SEC said – okay, if you plead guilty in criminal case with similar facts, then you have to admit wrongdoing in our cases.

In 2013, then SEC Chair Mary Jo White broadened out those categories – and more companies and individuals were forced to admit wrongdoing.

But still, the neither admit nor deny language dominates SEC settlements.

Now, two law professors at the University of Illinois School of Law – Verity Winship and Jennifer Robbennolt – are out with a law review article titled Admission of Guilt in Civil Enforcement — where they lay out the shifting landscape.

In the article the authors point out that the SEC’s policy of letting enforcement targets settle while neither admitting nor denying allegations provoked judicial rebukes and a public debate.

“But the SEC is only the tip of the iceberg,” they write. “Administrative agencies rely heavily on settlement as a key enforcement tool. Admissions of guilt – or, more commonly, declarations that nothing is admitted – form part of these settlement agreements and the underlying negotiations.”

“Taking our lead from judges, regulators, and commentators who have described agencies’ approaches to admissions with words like truth, guilt, confession, and apology, we link this discussion to empirical studies of the psychology of blame and responsibility-taking, acknowledgment, and apologies,” they write.  “We use these studies to shed light on the function and value of admissions, with particular attention to the implications for agency settlement negotiations.”

“In doing so, we take a close look at what it means to make and require admissions. Although the policy choice is often portrayed as binary — either an agency requires admissions or it does not — the reality is more varied. We break down these two categories to identify nuances within each. What is the interaction between admissions and denials of guilt? What precisely is being admitted? Facts? Violation of a particular statute or rule? Intent? The article provides a framework based on the empirical literature and on concrete examples drawn from the experience of administrative agencies.”

Winship graduated from Harvard Law School in 2000, went on to clerk for two years and then joined Wilmer Hale in New York.

How did she become interested in admissions and denials?

“My interest in securities enforcement started when I was at Wilmer Hale,” Winship told Corporate Crime Reporter in an interview last week. “I noticed the disconnect between what I learned in law school about what law looks like when you are actually practicing in the securities area. In particular, I was interested in the role of settlements and research into prior settlements — that was striking for someone recently out of law school. I became interested in what was agreed to in the underlying documents. At the time, they were less available. They have become increasingly available for people to look. I thought it would be a worthwhile enterprise to look closely at the terms of the agreements.”

The vast majority of civil settlements in SEC cases are neither admit nor deny settlements. Why is that the case?

“The historic explanation is that it is used as a way to enable settlements, to make it a useful tool. The concern was that if you start to require more admissions you are going to get more reluctance to settle and you will throw a spanner in the works of one of the main avenues of enforcement.”

Do you believe that to be true?

“The SEC went from a no admit no deny policy toward requiring admissions in some cases. The Canadians – at least in Ontario – on the other hand went in the other direction. They went from always requiring admissions to allowing for consent settlements. The rationale for that move was that they were just delaying the resolution. It wasn’t changing the outcome but it was introducing a delay and increased cost.”

“We see at least some examples of the cost of requiring admissions all the time.”

Do you believe neither admit nor deny is required for an efficient administration of justice?

“The verdict is out on how much this is causing collateral costs. We have not seen a deep empirical study of the actual costs. It turns on how much overlap there is. If the worry is that it is going to slow everything down because targets will balk at settling because of private litigation and other pursuits – we can’t answer that until we answer how much overlap there is. We don’t have a great assessment of that.”

What do you mean by overlap?

“The targets will say – we are worried about collateral consequences. We are worried that an admission in front of an agency will be used in private litigation. Or in the other direction, we are worried about the implications for criminal liability. But we don’t have a good assessment in the literature of how much the agencies are pursuing the same thing as private litigation.”

Do you have a sense from your studies about what real impact an admission would have on a parallel proceeding or a subsequent proceeding?

“There is some work on overlap outside the admissions context by Urska Velikonja of Georgetown Law School that suggests that there is not as much overlap as commonly indicated. But we don’t have an answer in the literature about the admissions.”

How many admissions have there been under this new policy?

“In November 2016, Mary Jo White said that they had admissions from 77 enforcement targets, that included 30 individuals and 47 entities since the policy went into effect. That’s the most up to date information.”

“In a companion project that my co-author and I are doing, we are looking at the underlying settlement agreements.”

In your article, you mentioned that in 2015, Senator Elizabeth Warren sent a critical letter to then Mary Jo White listing the “Failure to Require Admissions of Wrongdoing in SEC Enforcement Cases” as one of the “extreme disappointments” of White’s term. According to Senator Warren, only 19 of 520 settlements with the SEC between June 2013 and September 2014 included an admission.

“There was criticism that the SEC settlements were against individuals, against garden variety fraud, and questions were raised — what types of admissions were they getting — admissions of wrongdoing or admissions of facts?”

“This project that my co-author and I are working on should answer those questions and look at whether they have any validity. The number from Mary Jo White is an aggregate number.”

“Part of our project is to look at the underlying documents. We need more information about that. There were some high profile admissions. You see that in the London Whale matter.”

“We have been talking mostly about the SEC. This debate was prominent with respect to the SEC. But part of what this project does is to think about it a little bit more broadly, about how agencies are changing their policy when it comes to admissions. Our inquiry is actually broader than the SEC — other financial regulators, the EPA, FTC, Department of Justice Civil Division.”

[For the complete q/a format Interview with Verity Winship, see 31 Corporate Crime Reporter 17(13), print edition only.]

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