The SEC routinely enters into settlement agreements in which defendants agree to sanctions without admitting or denying the SEC's allegations against them. This settlement policy has been an essential component of the SEC's enforcement program over the past 80 years, helping the SEC to consensually resolve the vast majority of its enforcement cases. This settlement policy, however, has recently been called into question by a federal judge and by one of the five commissioners of the SEC.

The most recent criticism of such settlements comes from the decision in S.E.C. v. Vitesse Semiconductor Corp., et al., No. 10-CIV-9239 (ordered S.D.N.Y. March 21, 2011), in which the SEC's policy on settlements was characterized as "a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C." The Vitesse court was reluctant to approve the proposed $3 million options backdating settlement because such settlements do not let the public know whether the SEC charges are true. Although this kind of settlement may be appropriate for private parties, the court questioned whether it was appropriate for a U.S. government agency to settle allegations in a manner in which the defendants were merely prohibited from denying alleged misconduct. Ultimately, the court approved the settlement noting that the defendants had pleaded guilty in parallel criminal proceedings. However, it "reserve[d] for the future substantial questions of whether the Court can approve other settlements that involve the practice of 'neither admitting nor denying.'" In 2009, the same judge initially rejected a proposed $33 million settlement between the SEC and Bank of America over the Merrill Lynch acquisition, commenting that the 'without admitting or denying' policy was "a contrivance designed to provide the SEC with the facade of enforcement … ."

Earlier this year, SEC Commissioner Luis Aguilar expressed the possibility that the SEC may revise its practice of entering into "neither admitting nor denying" settlements. His remarks were prompted by his displeasure with defendants who issue statements after settling with the SEC suggesting that their conduct was "really not that bad" or that the SEC "over-reacted." Commissioner Aguilar stated that SEC settlements should send a clear message as to what kinds of activities constitute misconduct. He noted that if defendants persist in issuing exculpatory statements and treating settlements as the cost of doing business, it may be worth revisiting the SEC's settlement policy to ensure that its settlements serve as a greater deterrent to others who may contemplate similar activities.

Despite these criticisms, it is highly unlikely that the SEC will abandon its policy of allowing defendants to settle without admitting or denying the SEC's charges. The SEC could not abandon this policy without burdening itself with a far heavier litigation docket. Given the SEC's limited resources - which will not increase substantially in this era of budget cuts - a heavier litigation docket would consume resources that otherwise would be used in enforcement investigations, inevitably reducing the scope and vigor of the SEC's enforcement program. Consistent with Commissioner Aguilar's point, however, it is expected that the SEC will be increasingly intolerant of defendants who settle and then publicly deny the factual or legal basis for the actions against them and will seek to withdraw settlements with defendants who attempt to have it both ways.