The SEC's New Policy on Seeking Admissions in Settlements

by Cadwalader, Wickersham & Taft LLP

On June 18, 2013, in comments to the Wall Street Journal CFO Network Conference in Washington, D.C., SEC Chairman Mary Jo White announced that the Securities and Exchange Commission will begin to press for admissions of liability from registrants who engage in egregious fraudulent actions that significantly harm investors.1 While reiterating the importance of the Commission's "no admit, no deny" settlement model for the majority of enforcement actions, Chairman White announced that the SEC will be "seeking admissions going forward" in certain cases.2 In a memo to SEC staff the same week, the current co-directors of the Enforcement Division elaborated that admissions may be sought in cases that include "misconduct that harm[s] large numbers of investors. . . particularly when the defendant engage[s] in egregious intentional misconduct; or when the defendant engage[s] in unlawful obstruction of the commission's investigative processes."3 This new policy and other recent developments suggest that the SEC will seek greater accountability in future settlements.

Settlements play a critical role in the SEC's enforcement program. The SEC handles a large caseload with relatively limited resources, and yet has maintained more than a 90% success rate.4 Much of that success is attributable to the Commission's reliance on settlements. On average, each year the SEC settles almost 700 cases while litigating fewer than fifteen.5 From the SEC's perspective, settling rather than litigating violations of securities laws achieves the Commission's goals of accountability, deterrence, investor protection, and compensation to harmed investors in the broadest and most efficient manner possible given its resource constraints.6

Since the establishment of the SEC's Division of Enforcement in 1972, the SEC's settlements typically have not included any admission or denial of wrongdoing.7 The "no admit, no deny" policy encourages corporations to settle because it allows a corporate defendant to forego time-consuming and expensive litigation while simultaneously avoiding the reputational harm and collateral consequences that would come from an admission of wrongdoing. On the latter, the policy provides charged corporations liability protection because: 1) if the corporation litigates and loses, issue preclusion could mean almost automatic additional liability in the inevitable subsequent suit by private plaintiffs and 2) although an admission of wrongdoing in a settlement does not satisfy the requirements for issue preclusion, the admission nonetheless could provide substantial negative evidence in any future private suit.8

Although the "no admit, no deny" policy is seemingly preferred by both the SEC and defendants, its value to the investing public recently has come under scrutiny. Most notably, in the widely discussed 2011 case SEC v. Citigroup, Judge Rakoff refused to approve the SEC's settlement with Citigroup that contained the "no admit, no deny" language, reasoning that it failed to serve the public interest.9 He opined that while "the policy of accepting settlements without any admissions serves various narrow interests of the parties," it left "defrauded investors substantially short-changed."10 Judge Rakoff wrote that the monetary penalties imposed on Citigroup without any admission of wrongdoing represented merely "the cost of doing business imposed by having to maintain a working relationship with a regulatory agency."11 He pointedly questioned what the SEC gained from the no-admission settlement besides a "quick headline."12

Although the SEC's settlement with Citigroup ultimately appears to be headed for judicial approval in the Second Circuit,13 Judge Rakoff's opinion sparked debate about the SEC's longstanding "no admit, no deny" settlement model. Expressing similar concerns about the public interest, the House Financial Services Committee held a hearing regarding "no admission" settlement policies of civil enforcement agencies.14 In apparent response to the scrutiny, the SEC's then-Director of Enforcement, Robert Khuzami, announced on January 6, 2012 that the SEC would be removing the "neither admit nor deny" language from settlements for which there is a parallel criminal conviction or a non-prosecution or deferred prosecution agreement that included admissions or acknowledgements of criminal conduct.15 Khuzami stated that the policy change was the result of a staff review and discussions with the commissioners in recent months and refuted any question that the change was due to Judge Rakoff's Citigroup decision.16 Regardless, the policy revision represented a significant shift away from the "no admit, no deny" settlement model criticized by Judge Rakoff.

Chairman White's recent comments combined with the above-mentioned Division of Enforcement memorandum indicate that the SEC will go one step further and seek admissions in cases outside of the parallel criminal investigation context. However, it is important to remember that the SEC remains resource limited. Excluding the "neither admit nor deny" language from settlements will lower significantly the incentive of registrants to settle, possibly requiring the SEC to litigate more cases. Moreover, many of the SEC's settlements contain allegations that would be exceedingly difficult for the SEC to prove at trial. For instance, complicated accounting cases often involve difficult judgment calls, which experts may debate. Further, cases involving foreign witnesses and evidence would pose challenges to the SEC, an agency that is not accustomed to litigating cases. As such, and consistent with the SEC's communications, the Commission likely is to reserve requiring admission to a handful of cases involving egregious and intentional misconduct by senior executives that causes significant harm to investors or third parties.

 * Bradley J. Bondi is a partner in the Business Fraud Complex Litigation Group and leads the SEC Enforcement and Investigations practice at Cadwalader, Wickersham & Taft LLP. Partners Ray Banoun and Peter Clark and summer associate Robert Duncan provided significant input on this article.


1 Securities and Exchange Commission: Wall Street Journal CFO Network Conference, C-SPAN (June 25, 2013),
2 Id.
3 Kara Scannell, SEC Considers Policy Shift on Admissions of Wrongdoing, FINANCIAL TIMES (June 19, 2013),
4 Securities and Exchange Commission, FY 2011 Performance and Accountability Report 61 (2011), available at
5 Id.
6 Khuzami Defends SEC Settlement Policies on Capitol Hill, SEC TODAY (CCH), January 10, 2012 [hereinafter Khuzami].
7 Id.
8 See Ross MacDonald, Setting Examples, Not Settling: Toward a New SEC Enforcement Paradigm, 91 Tex. L. Rev. 419, 432 (2012).
9 S.E.C. v. Citigroup Global Mkts. Inc., 827 F. Supp. 2d 328, 335 (S.D.N.Y. 2011); see also Bradley Bondi & Douglas Fischer, Citigroup Ruling Has Serious Implications for SEC Settlements, JURIST - SIDEBAR, (Jan. 16, 2012),
10 Citigroup, 827 F. Supp. 2d at 333-34 (emphasis in original).
11 Id. at 333.
12 Id.
13 The Second Circuit granted a stay from the District Court's order for a prompt trial after refusing to approve the settlement and held that the SEC had a strong likelihood of success in its appeal. See U.S. S.E.C. v. Citigroup Global Mkts Inc., 673 F.3d 158 (2d Cir. 2012).
14 The hearing was announced on December 11, 2011 and subsequently held on May 17, 2012. See Examining the Settlement Practices of U.S. Financial Regulators, 112 Cong. 112-28 (2012).
15 Khuzami, supra.
16 Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.