You’ve read it a thousand times: A company settles with the US Securities and Exchange commission for tens of millions of dollars after being accused of misleading investors or insider trading or bribery or money laundering. But every time there’s the same catch — they “admit no wrongdoing.”
Not anymore. The SEC announced Wednesday it’s breaking away from the “no admit, no deny” policies of the past, and plans to force at least some companies to declare that they broke the law if they want a settlement.
‘Justice and Morality’
Historically, the SEC has let companies — often very rich ones for which multimillion-dollar fines are a drop in the ocean — settle cases without admitting to anything. That’s led many legal scholars and critics to ask: what’s the point of an enforcement agency that draws down in exchange for negligible fines that often come out of shareholders’ bank accounts?
In 2009, one Manhattan judge tore into the SEC, writing that a proposed settlement with Bank of America lacked “the most elementary notions of justice and morality.” (He eventually let it through when the fine was jacked up from $33 million to $150 million). But even a public lashing didn’t change things:
- Of 2,063 SEC cases from 2014 to 2017, only 2% ended in any kind of admission, according to research by Northern Illinois University law professor David Rosenfeld.
- A mere 22 firms admitted fraud in the same time period. Meanwhile, several Citigroup affiliates settled fraud charges for $180 million, JPMorgan settled bribery charges for $264 million, and State Street settled fraud charges for $35 million. None admitted wrongdoing.
“When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law,” said SEC Enforcement Director Gurbir Grewal at a legal conference on Wednesday.
Will They Bite?: Companies may resist admissions not just because it looks bad, but because of the potential collateral damage — namely, getting hit with costly civil lawsuits from investors or others who claim harm from any wrongdoing. Congrats to the corporate law firms that just booked a boatload of new billable hours, though.