Monday, 9 January 2012

No more 'neither admit nor deny'

I wrote about the regulatory settlements regarding alleged insider trading:

Although it is good that action was taken (some of them eight years old), in all cases it was without admission or denial of liability. I even mentioned that this was a quite normal way to settle matters in the US, but that I don't like it.

Apparently, in the US the SEC has been criticized for using the same phrase too often in settlements and will start to make changes. Hopefully the Malaysian authorities (SC and BM) will follow suit.

From the Business Times (Singapore), January 9, 2012 (link only for free after 6pm):,4574,472902,00.html?

No more 'neither admit nor deny' escape route for US firms
SEC to change policy on companies' admission of guilt in securities fraud cases

(WASHINGTON) The Securities and Exchange Commission (SEC) is making a major change in how it settles some securities fraud cases, telling companies that they will no longer be allowed to say they neither admit nor deny the commission's civil charges when, at the same time, they admit to or have been convicted of criminal violations.

The change has been under consideration for some time and could be announced soon, according to people who have been briefed on the new policy. The SEC will continue to use the 'neither admit nor deny' settlement process when it alone reaches a deal with a company in a case of civil securities law violations, the people briefed on the policy said. Those types of cases make up the majority of its settlements.

The SEC has been criticised, in federal court and on Capitol Hill, for allowing companies to repeatedly settle fraud cases without admitting or denying the charges. That policy has been allowed to continue in cases even when a company admits the same conduct to another government agency, often the Justice Department.

For example, the SEC and the Justice Department announced on the same day last month Wachovia would pay US$148 million to settle charges the bank reaped millions of dollars in profits by rigging bids in the municipal securities market, one of several such settlements announced last year by the two agencies.

In the Justice Department settlement, Wachovia said it 'admits, acknowledges and accepts responsibility for' manipulating the bidding process in the sale of derivatives on tax-exempt bonds to institutional investors like cities, hospitals and pension plans over a six-year period ending in 2004. But in fashioning a settlement with the SEC based on the same facts, Wachovia agreed to settle the charges 'without admitting or denying the allegations.'

The 'neither admit nor deny' practice has been in use for years by many government agencies in addition to the SEC. But it has attracted renewed criticism recently.

The SEC has defended the practice, saying that by settling with companies, it saves the commission the far greater expense - and potential risk - of fighting them in court.

The agency says it is usually able to get as much money from a settlement as it could win in a protracted legal case, with money being returned to investors more quickly.

In crafting a settlement of securities fraud charges, companies frequently seek the 'neither admit nor deny' language for fear that admitting the conduct could then be used against them in shareholder lawsuits seeking damages. -- NYT

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