The SEC’s (New) Admissions Policy: Questions And Consequences

Nearly a year has passed since the SEC announced that it would require admissions of wrongdoing as a condition of settling SEC charges in certain cases. Perhaps it can no longer be called a "new" policy. But lawyers are still wrestling with questions about the policy and its consequences - both intended and unintended. How broadly does the new policy apply? How and when should the question of its application be addressed in a case? How will admissions under the policy affect other proceedings or D&O insurance coverage? I recently participated in a panel presentation on these and related topics at the ABA Section of Litigation Annual Conference, along with Lori Echavarria of the SEC's Los Angeles office, Patricia Canavan of UBS, and Grant Fondo of Goodwin Procter.

To set the stage: the SEC's prior policy, implemented in 1972, permitted a defendant to settle with the SEC without having to admit wrongdoing. The standard practice was to permit a defendant to settle charges without admitting liability, although the defendant could not publicly deny the allegations. But over the years a controversy developed regarding the wisdom of this policy, which gained prominence when Judge Rakoff rejected the SEC's proposed settlement with Citigroup in 2011 because it did not require an admission of wrongdoing. See SEC v. Citigroup Global Mkts. Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011), stay granted, 673 F.3d 158 (2d Cir. 2012).

Just months after Mary Jo White was sworn in as the new Chair, she announced the SEC's new policy requiring admissions in some cases. Subsequently, in a speech last September, Chairperson White identified the following classes of cases where admissions might be required as a condition of settlement:

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 either 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. It is important to note, however, that while the new admissions policy is certainly in place and being applied in such cases, the 1972 no admit/no deny policy has not been eliminated and cases can still be settled without admissions of wrongdoing. In another speech last October, Chairperson White also warned that the SEC would pursue "all types of violations of our...