WASHINGTON (Reuters) - U.S. securities regulators will no longer let companies settle civil cases without admitting or denying the charges if they have already admitted wrongdoing in parallel criminal cases.
The policy change, announced by Securities and Exchange Commission Enforcement Director Robert Khuzami, comes just over a month after a federal judge in New York rejected a proposed $285 million settlement between the SEC and Citigroup, in part because the bank had not admitted to wrongdoing.
In that case, no parallel criminal charges have been filed.
Khuzami said the SEC’s new policy only applies in limited circumstances.
It seemed “unnecessary” for the SEC to include a “neither admit” provision if a defendant had already been criminally convicted of the same conduct, Khuzami said.
The practical impact of the change could be limited. “It is a very small, marginal change,” said John Coffee, a professor at Columbia Law School. “It does make them look more flexible...It was ludicrous to say the defendant does not admit charges that he’s already pled criminally guilty to.”
But for years companies have admitted to a narrow set of facts in resolving a criminal case with the Justice Department, while neither admitting nor denying more colorful language in an SEC complaint.
In one of the most egregious examples, Bernard Madoff pleaded guilty for his role in a multi-billion dollar Ponzi scheme in 2009, but neither admitted nor denied the allegations in a settlement with the SEC.
In rejecting the Citigroup accord, U.S. District Judge Jed Rakoff said the SEC’s failure to require Citigroup to admit or deny its charges left him with no way to know whether the settlement was fair.
The SEC policy change comes after a review by senior enforcement staff that began last spring, Khuzami said, and is “unrelated” to the Citigroup ruling.
The Citigroup settlement was intended to resolve charges that the firm sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt.
The SEC got into hot water with Rakoff again last week, when he chastised the agency for keeping him out of the loop on its efforts to salvage the case.
When Rakoff issued a ruling opposing any delay in the case last Tuesday, the 2nd Circuit Court of Appeals had granted a temporary stay 78 seconds earlier.
A motions panel on January 17 will consider the SEC’s bid for a longer delay as it appeals Rakoff’s ruling.
(Corrects paragraph 7 spelling to Bernard instead of Benard, spelling to nor instead of not)
Reporting By Sarah N. Lynch and Aruna Viswanatha; editing by John Wallace and Carol Bishopric