Under new Chairwoman Mary Jo White, the SEC has created a policy that requires defendants to admit wrongdoing in certain “egregious” cases. This marks a departure from the SEC’s previous practice of allowing defendants to settle without admitting wrongdoing or liability, and demonstrates a continued move towards requiring less than favorable terms for defendants in settlements. According to news reports, the SEC will now consider three criteria to determine whether a defendant should be required to admit wrongdoing in a settlement: (i) “misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm”; (ii) “egregious intentional misconduct”; and (iii) “when the defendant engaged in unlawful obstruction of the commission’s investigative processes.” While the prior practice was seen as a way to encourage settlements and obtain relief for victims quickly, the new policy is designed to force accountability in certain cases. For more information, please click here and here.


The prior policy of permitting defendants to "neither admit nor deny" wrongdoing was beneficial to the SEC as well as defendants in that it permitted the SEC to avoid costly trials. Although the SEC’s new policy would appear to be harsher on defendants who wish to settle, in practice it may not turn out to be as far reaching as it may appear. Indeed, Chairwoman White has already stated that most defendants will still be able to settle without admitting liability. As the agency works to define and apply the three criteria it has laid out, it would not be surprising to see a high bar set for the application of the new policy. Instead, we expect the SEC to act prudently and preserve its ability to conserve resources while maintaining flexibility in settlements.