* Gallagher says policy could work for repeat bad actors
* Shift would seek admissions of wrongdoing in some cases
* Warns against using it on companies with civil exposure
* Aguilar lauds new policy, seeks post-settlement monitoring
By Sarah N. Lynch
WASHINGTON, June 26 The U.S. Securities and
Exchange Commission should focus its new policy of seeking
admissions of wrongdoing on cases such as those involving bad
actors who have a high risk of being repeat offenders, SEC
Republican Commissioner Daniel Gallagher said.
In an interview with Reuters this week, Gallagher for the
first time publicly spoke about the changes SEC Chair Mary Jo
White is making to the agency's settlement policy and said the
shift overall seems like a good step.
In typical SEC settlements, the agency has historically let
defendants say they neither admit nor deny the allegations.
Last week, however, White said the SEC will start trying to
extract admissions of wrongdoing in selective cases where there
is egregious intentional misconduct, widespread harm to
investors or attempts to obstruct the SEC's investigation.
"In cases where there is a really bad actor and ... for
whatever reasons, we are concerned they will get back into the
public sphere, then having them admit fault I think that is good
thing for the investing public," Gallagher told Reuters.
Gallagher said, though, that the SEC must be cautious about
which defendants it applies the new policy to. The SEC must also
take into account how its workload might be impacted.
"I worry, to the extent we are going after entities that
have a lot of civil exposure, that we will end up in court and
tying up our resources," he said.
SEC settlements have come under scrutiny from judges and
some lawmakers in the wake of the 2007-2009 financial crisis.
Gallagher believes the actions of U.S. District Judge Jed
Rakoff, who has denied some SEC settlements on the grounds they
were too weak, likely helped prod the SEC to revisit the issue.
The federal appeals court in New York is currently
considering an appeal by the SEC and Citigroup Inc of
Rakoff's November 2011 ruling striking down the bank's $285
million settlement of charges that it misled investors about a
collateralized debt obligation. Rakoff said he could not tell if
the settlement was fair because Citigroup was not required to
address the charges.
White, who joined the SEC in April, pledged to review the
settlement policy as part of a broader look at the agency's
enforcement division. The decision was first announced by the
SEC's two enforcement chiefs, Andrew Ceresney and George
Canellos, in an internal e-mail.
However, prior to making the change, the agency's other four
commissioners were all consulted. Having buy-in from
commissioners is crucial because a majority of the commission is
needed to approve a settlement.
SEC Commissioner Luis Aguilar, a Democrat who in 2011
called for a review of the neither admit nor deny settlement
policy, supports the shift.
"I was particularly glad to see that the new settlement
policy includes situations where the defendant engaged in
unlawful obstruction of our investigative process," Aguilar said
in an interview with Reuters. "That was a suggestion I had made
to the Chair."
Defense lawyers are still wary about how the SEC will decide
which cases to pick when deploying the new policy and whether it
might make it difficult for their clients to settle.
They have said admitting guilt could open the door to
private litigation or encourage federal criminal charges by the
Justice Department or litigation from state attorneys general.
AGUILAR WANTS POST-SETTLEMENT MONITORING
White has said she does not expect the agency to apply the
policy broadly, meaning the neither admit nor deny policy will
still be used most of the time.
Because of that, Aguilar said he has asked the agency's
enforcement staff to "closely monitor statements by defendants
so that any post-settlement denials are dealt with
Aguilar was referring to the typical language in settlements
that gives the SEC the authority to ask a court to vacate a
final judgment and litigate the matter if a defendant breaches
the terms of the agreement with the SEC.
That language generally prohibits defendants from later
denying the allegations to the press or in the public sphere.
However, defendants are still allowed to take a position on
the allegations in other contexts, including sworn testimony or
litigation not involving the SEC, such as private shareholder