Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

SEC to Require More Admissions of Wrongdoing

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The move is a return to an Obama-era policy.
  • SEC will be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest.
  • Officer and director bars are also a critical tool, the SEC says.

SEC Enforcement Director Gurbir Grewal said Wednesday that the agency will return to an Obama-era environment of requiring firms, in certain circumstances, to admit wrongdoing.

“When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law, and so, in an era of diminished trust, we will, in appropriate circumstances, be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest,” Grewal said during the Practising Law Institute’s SEC Speaks event.

“Admissions, given their attention-getting nature, also serve as a clarion call to other market participants to stamp out and self-report the misconduct to the extent it is occurring in their firm,” Grewal said.

Former SEC Chairwoman Mary Jo White instituted the “admit wrongdoing” policy in 2016.

Jim Lundy, a partner at Faegre Drinker’s Chicago office, told ThinkAdvisor Thursday in an email that when the SEC implemented this policy previously under the Obama administration, “it was applied relatively selectively.”

That said, “this is an aggressive policy to implement, but it is consistent with the increasingly aggressive messaging that has been coming from SEC Leadership since Chair Gensler took over.”

Added Lundy: “Due to the various collateral consequences of making admissions in SEC settlements, parties confronted with this policy will need to give much stronger strategic consideration to litigating against the SEC to fight the charges.”

Ken Herzinger, a former SEC attorney and now partner at Paul Hastings, said that “ending the ‘no admit, no deny’ for certain matters might suggest a more stringent SEC,” but the move could backfire.

“If the SEC insists on an admission of wrongdoing it will force more defendants to go to trial, because such an admission would cause significant reputational damage to companies and individuals and have severe collateral consequences under the SEC’s bad-actor rules and in follow-on litigation.”

More trials, Herzinger said, could result in fewer successful SEC actions. “This will lead to an increased burden on the already taxed SEC staff and increase the time it takes to resolve investigations – the original impetus for the ‘no admit, no deny’ policy,” he said. 

Officer and director bars, likewise, Grewal said during his remarks, “are a critical tool” in the SEC’s efforts.

“If there is egregious conduct and a chance the person could have the opportunity to serve at the highest levels of a public company, we may well seek an officer and director bar to keep that person from being in a position to harm investors again,” Grewal said.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.