* SEC will use no admit, no deny settlements in most cases
* White says SEC will only seek admission in selective cases
* SEC settlement policy has come under scrutiny by judges
* White acknowledges this may push more cases to trial
* SEC also mulling some structural changes in enforcement
By Sarah N. Lynch
WASHINGTON, June 18 U.S. securities regulators
will try to extract admissions of wrongdoing from defendants in
some settlements, potentially resulting in more cases going to
trial, Securities and Exchange Commission Chair Mary Jo White
The announcement marks a departure from the typical practice
at the SEC and many other civil federal regulatory agencies of
allowing defendants to settle cases without admitting or denying
That practice has come under scrutiny following the
financial crisis, leading some federal judges to challenge or
strike down proposed settlements.
"We are going to in certain cases be seeking admissions
going forward," White said at the annual "CFO Network" event
hosted in Washington by the Wall Street Journal.
"Public accountability in particular kinds of cases can be
quite important and if we don't get them, then we litigate
This marks White's first big enforcement policy change since
she took over the helm of the SEC in April.
The commission is also considering significant structural
changes to its enforcement division to bolster its ability to
try and win cases, people familiar with the division's thinking
said, after a mixed record in some recent financial
The enforcement division's two co-directors, George Canellos
and Andrew Ceresney, are considering organizational changes to
strengthen coordination between investigators and trial lawyers
so they fare better if they go to trial, and to better deploy
the division's accountants as part of a renewed effort to combat
fraud, according to several people familiar with the matter.
Observers have been eager to see how White shapes the
agency's enforcement division, especially given her background
as a former U.S. Attorney in Manhattan who prosecuted mobsters
In her confirmation hearing, she pledged to lawmakers that
she would be a tough enforcer of the federal securities laws.
The changes to the settlement policy, announced internally
to staff in an email on Monday, come at a critical time for the
The agency is awaiting a decision from a New York appeals
court after U.S. District Judge Jed Rakoff in Manhattan declined
to approve its proposed $285 million settlement with Citigroup
Inc over whether the bank misled investors during the
'NO ADMIT, NO DENY' SETTLEMENTS WILL REMAIN
White told reporters on the sidelines of Tuesday's event
that people should not interpret the change as a criticism of
the settlement policy and in fact a "majority" of cases will
still likely be settled with defendants neither admitting nor
denying any wrongdoing.
"This is not a criticism of the past practice and having 'no
admit, no deny' settlement protocols in your arsenal as a civil
enforcement agency (is) critically important to maintain," she
She added that cases will need to meet certain criteria in
order for the SEC to seek admissions. Those include cases where
there was "widespread harm to investors" or "egregious
intentional misconduct," she said.
She described the change as "incremental" to the January
2012 announcement by former SEC Enforcement Director Robert
Khuzami that the SEC would no longer allow defendants to neither
admit nor deny the charges if they had already made admissions
in parallel criminal cases.
Generally, SEC officials have staunchly defended the
"neither admit, nor deny" policy.
White's predecessor, Mary Schapiro, defended the earlier
policy, saying that requiring admissions would discourage
settlements, bottle up the courts with lawsuits, and cause
delays in returning money to harmed investors.
Earlier this year, freshman Senate Democrat Elizabeth Warren
of Massachusetts raised questions about that philosophy, and has
been pressing the SEC for details on how it determines when to
settle or take a defendant to trial.
Rakoff, who has been arguably the most vocal about the SEC's
settlement policy, declined to comment on the changes White
The SEC enforcement division's Canellos on Monday outlined
some areas being explored to get investigators and trial lawyers
working together more closely and effectively, according to
several people familiar with remarks he made at a panel
discussion in Washington.
Although the majority of the SEC's cases are generally
settled, the SEC has had mixed results when they have gone to
trial in some financial crisis cases.
Last year, a jury rejected civil fraud charges against
Reserve Primary Fund founder Bruce Bent, whose money market fund
"broke the buck" during the financial crisis after its heavy
exposure to Lehman Brothers prompted an investor sell-off. His
son Bruce Bent II was also cleared of knowingly violating
securities laws but was held liable on one count of negligence.
White gave no details about organizational changes when
asked about the topic on Tuesday. But she said she wants to put
a renewed focus on accounting fraud. "I think you'll see more
targeted resources in that area," she said.
Officials are also considering creating an accounting task
force, one person familiar with the matter said.