“Neither admit nor deny” may be removed from SEC settlements.

Requesting guilt admission is powerful, but difficult to enforce:

• Since 1972, the SEC has settled cases without requiring admission of wrongdoings from alleged perpetrators as a matter of policy. The approach prevented the public perception that the SEC was frivolous in its enforcements (which defendants were actively stating).
• In 2009, courts started to reject such settlements, considering them toothless or inappropriate considering pleadings.
• Also, the public perception switched after the mortgage bond abuses became notorious. The SEC was now perceived as not being active enough.
• In 2013, the SEC announced that it would start requesting admissions.
• Still, only 2% of the 2,000+ cases settled between 2014 and 2017 admitted gilts – that’s 44 cases with 22 wrongdoers, says David Rosenfeld, Professor at The Northern Illinois University in his academic paper.
• Why such a low number? Admissions of guilt open the floodgate to expensive damages in civil litigations, and respondents are better off fighting with the SEC in court rather than settling. In turn, the SEC (an agency with limited resources) has limited bandwidth for court litigation, and can only force such admissions in the most egregious cases.
• Under the Trump administration, the SEC abandoned the policy altogether.

As part of the SEC’s new stated intent on deterrence, the agency will start asking again that wrongdoers admit guilt.

But we still need to see how many such admissions it will obtain, and for which types of situations.

Reference

• David Rosenfeld, Iowa Law Review, Vol. 103:113: Admissions in SEC Enforcement Cases:
  The Revolution That Wasn’t