SEC Changes Policy on Admission of Guilt in Fraud Cases

Defendant's no longer allowed to use phrase if already found guilty in criminal case

The Securities and Exchange Commission has revised its traditional “neither admit nor deny” settlements policy for criminal cases.

The new policy, according to the SEC, does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in the criminal cases.

Under the SEC’s traditional “neither admit nor deny” approach, a defendant could be found guilty of criminal conduct and, at the same time, settle parallel SEC charges while neither admitting nor denying civil liability. This approach, the SEC explained, “has reflected that the goals, objectives and other factors in the civil settlements that we and other federal and state agencies enter into often are distinguishable from those at issue in criminal proceedings.” The policy, the SEC says, “nevertheless seemed unnecessary for there to be a ‘neither admit’ provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding.”

Robert KhuzamiHowever, Robert Khuzami (left), director of the SEC’s Division of Enforcement, noted that its new policy change does not affect the agency’s traditional “'neither admit nor deny’ approach in settlements that do not involve criminal convictions or admissions of criminal law violations.”

In particular, the new policy “is separate from and unrelated to the recent ruling in the Citigroup case, which does not involve a criminal conviction or admissions of criminal law violations.” The SEC has appealed that ruling and the reasons for that appeal are described in the public statement Khuzami issued at that time.

The policy change applies to cases involving parallel (i) criminal convictions or (ii) NPAs or DPAs that include admissions or acknowledgments of criminal conduct. Under the new approach, for those settlements the SEC says it will:

  • Delete the “neither admit nor deny” language from the settlement documents.
  • Recite the fact and nature of the criminal conviction or criminal NPA/DPA in the settlement documents.
  • Give the staff discretion to incorporate into the settlement documents any relevant facts admitted during the plea allocution or set out in a jury verdict form or in the criminal NPA/DPA.
  • Retain the current prohibition on denying the allegations of the Complaint/OIP or making statements suggesting the Commission’s allegations are without factual basis. 

‪The revision applies in the minority of our cases where there is a parallel criminal conviction (by plea or verdict) or criminal NPA/DPA involving factual or legal claims that overlap to some degree with the factual or legal claims set out in the Commission’s complaint or OIP, the SEC explains.

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