Maybe someday the retail investor will see some of the thieves get their day!
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The Securities and Exchange Commission is considering a change that would require some defendants to admit wrongdoing when they have engaged in “egregious misconduct” – a move that would represent a shift away from a decades-long policy.
In a memo to enforcement attorneys, George Canellos and Andrew Ceresney, co-directors of the SEC’s enforcement division, said that “most” cases would continue to be settled with defendants not admitting or denying wrongdoing, as has been the policy since the 1970s. But in a shift, they said there were certain cases where “admissions could be in the public interest”.
“These may include misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm; where admissions might safeguard against risks posed by the defendant to the investing public, particularly when the defendant engaged in egregious intentional misconduct; or when the defendant engaged in unlawful obstruction of the commission’s investigative processes,” the directors wrote.
Any change in policy is likely to require agreement by a majority of the SEC’s five commissioners.
The commission has faced criticism from judges overseeing some settlements that it is looking for a rubber stamp for judgments that may not be just, fair or in the public interest.
The most high-profile critique was when Judge Jed Rakoff in 2011 refused to approve the SEC’s settlement with Citigroup over its sale of a collateralised mortgage product. A US appeals court is considering the issue but has signalled it may side with the SEC, citing the deference afforded to administrative agencies.
After the backlash, the SEC said it would no longer agree to no-admit, no-deny settlements when an entity or individual admitted wrongdoing in criminal cases. The memorandum to staff takes the issue further.
The SEC has argued it is more efficient to settle cases without requiring admissions of wrongdoing because of the risk of litigation and the resources required to focus on older cases rather than uncovering new frauds.
In positing the new framework, the co-directors said if there was a case that qualified for admission it would be worth litigating.
In a nod to the judicial criticisms, the SEC enforcement chiefs said: “We will also continue to strongly defend our discretion to reach such settlements in response to inquiries from courts.”
The directors said there would be a meeting with the hundreds of enforcement staffers to solicit their views. They also asked the staff to look at their inventory of cases to review whether any “warrant consideration of public acceptance of responsibility by the defendant(s)”.
