Last week, new SEC Commissioner Mary Jo White announced that the SEC would start to be more aggressive in some settlement negotiations by requiring companies or individuals to admit fault in order to settle civil cases. She emphasized that the SEC would still allow defendants to “neither admit nor deny” wrongdoing in most settlements, but proposed the change in cases of “egregious intentional conduct or widespread harm to investors.” The purpose of the change is to give the public what they apparently crave – an admission of wrongdoing, blame, assurance that the wrongdoer knows what he/she/it did and has been punished.
The new policy brings to mind more questions than answers. Why was the SEC ever allowing defendants to neither admit nor deny in cases of “egregious intentional misconduct”? There are certainly advantages to the “neither admit nor deny” policy. It encourages cooperation from defendants so that the truth will be revealed more quickly and completely. It encourages quick settlements and so avoids litigation costs. Litigating the big cases would be very expensive for everyone involved. Settlement seems much more cost-effective and parties are far more willing to settle if they do not have to admit responsibility. Still, when the SEC has significant evidence of “egregious intentional conduct or widespread harm to investors” and allows the responsible parties to pay a fine (really, allowing the corporation to pay a fine) without so much as admitting responsibility, it is hard to take its role as a law enforcement agency seriously.