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The SEC Dodges on 'Admit Nor Deny'

The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.
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The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.

Don’t worry, corporate America.

When you settle your case with the Securities and Exchange Commission you will almost certainly be able to say you “neither admit nor deny” the securities law violations of which you were accused.

Although the SEC announced what was billed by news reports as a “major change” in how it settles securities fraud cases, the change will have very little impact on most of the cases the SEC brings. It won’t affect shareholders — or shareholder lawsuits one bit.

What the SEC said Friday is that in one minute class of settlements, the accused company won’t be allowed to “neither admit nor deny” the charges. Only companies that admit or are convicted in a criminal court will actually be denied those familiar words of settlement blather.

It was ridiculous that they ever were allowed to neither admit nor deny wrongdoing in civil suits following a criminal conviction. The burden of proof and evidentiary rules are far stricter in criminal cases. If you have already been found guilty in criminal court, it’s pretty much irrelevant whether you admit or deny it. You did the bad thing in the eyes of the law.

The SEC has come under pressure — mostly from one federal judge and some lawmakers — to rethink the ease with which it lets companies settle without admitting wrongdoing.

Judge Jed Rakoff, a federal district court judge for the Southern District of Manhattan, has called the practice into question in a number of cases. He’s actually rejected a couple of settlements — or at least refused to immediately approve them — on the grounds the SEC should “see that the truth emerges.”

This latest ruling doesn’t touch on the types of cases with which Rakoff has been dealing. They involve no criminal accusations, much less convictions. And the SEC is not, so far as anyone can tell, thinking about revisiting this for the vast majority of purely civil cases.

But I can't help wonder if the SEC hopes most of us won't notice the difference.

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