In remarks at a recent public event1 and in interviews with the press, SEC Chair Mary Jo White announced and discussed a change to the SEC’s long-standing policy2 of permitting defendants to settle cases “without admitting or denying” the SEC’s allegations of wrongdoing. The change took on a slightly more formal tone last week when co-Directors of Enforcement George Canellos and Andre Ceresney issued a memorandum to attorneys within the division, discussing the change in greater detail.

In particular kinds of cases — such as cases involving misconduct that harmed a large number of investors or cases where a “heightened accountability or acceptance of responsibility through the defendant’s admission of misconduct may be appropriate” — the SEC may insist on admissions or acknowledgement of misconduct.

Ms. White said that such demands may not allow the SEC to achieve a prompt resolution in those matters, and indeed may prompt defendants to litigate, but that the different approach in the selected cases may nevertheless be appropriate and in the public interest.

The SEC will continue to utilize “without admitting or denying” settlements in “most” of its cases and it will continue to defend its discretion to reach such settlements.

It is too early to tell how this policy change will affect the SEC’s enforcement program. Clearly, in those cases where defendants, concerned about the effects of admissions on parallel civil or criminal cases, refuse to made admissions, there will be an increased litigation load for the SEC. In such cases, there will be an extended delay in resolving the matters. To the extent that the policy is applied broadly, the effects could be significant.

However, it is not unreasonable to speculate that this change in policy results from the pressure exerted by some federal judges who have hesitated in approving “without admitting or denying” settlements and the resultant publicity and congressional scrutiny. It therefore remains to be seen exactly how widespread this policy will be implemented.

One factor that could affect that decision is the soon-to-be-decided Citigroup case that is pending before the Court of Appeals for the Second Circuit. In that case, Citibank entered into a “without admitting or denying” settlement with the SEC, but Judge Jed S. Rakoff refused to accept the settlement in part because there were no admissions in the resolution.3

At virtually the same time, senior staff in the Division of Enforcement have discussed publicly their intention of bringing more cases as administrative proceedings, rather than filing them in federal court. Presumably, SEC administrative law judges would be more willing to accept settlements, as they typically have, with the traditional “neither admit nor deny” language.

Responding to the notion that the change in policy on requiring admissions was connected to Judge Rakoff’s criticisms, echoed by the U.S. Congress and the press, Ms. White emphasized that the decision was not predicated on the judge’s comments, or any particular case, but rather was “rooted in her experience as United States attorney in New York, where defendants in criminal cases are almost always required either to enter a guilty plea or go to trial.”4