On June 18, 2013, the U.S. Securities and Exchange Commission (SEC) Chairman Mary Jo White announced that the SEC will require parties in civil cases to admit liability as a condition of resolving securities-related charges in certain cases. This is a departure from the SEC’s prior policy, which permitted parties to settle SEC enforcement actions without admissions of wrongdoing. 

The announcement follows a wave of criticism of the SEC’s approval of the “neither admit nor deny” settlement agreements. One of the most outspoken critics of the prior policy is Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York. In November of 2011, Judge Rakoff rejected a proposed $285 million consent judgment between Citigroup and the SEC, and expressed strong disapproval of the SEC’s long-standing policy of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations. That case, SEC v. Citigroup Global Markets Inc., is now on appeal before the Court of Appeals for the Second Circuit. 

The new policy could be the starting point of a significantly more aggressive enforcement practice by the SEC with regard to civil settlements. The SEC intends to require admissions of liability on a case-by-case basis and only in cases where the SEC finds that a public acknowledgement of wrongdoing is appropriate, such as cases involving significant investor harm or intentional conduct. The requirement that a party admit liability as part of a settlement could have significant consequences in parallel litigation, such as shareholder and derivative lawsuits.

The parameters of the new policy are unclear. It remains to be seen how the SEC will apply this policy and whether other financial services agencies may follow this practice.