The U.S. Securities and Exchange Commission has modified its boilerplate settlement language to require that defendants admit wrongdoing when they have already done so in parallel criminal proceedings.
The change doesn’t affect the SEC’s typical approach of settling cases without requiring the subject of the action to admit wrongdoing when there is no criminal conviction, SEC Enforcement Director Robert Khuzami said today in a statement.
“The new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in criminal cases,” Khuzami said.
The SEC has come under fire for allowing subjects of lawsuits to settle claims without admitting to the misconduct. U.S. District Court Judge Jed Rakoff cited that policy last month when he rejected the agency’s proposed $285 million settlement with Citigroup Inc. over claims the bank misled investors in a financial product linked to risky mortgages.
The policy change, which has been under consideration for several months, is “separate and unrelated to” Rakoff’s ruling in the Citigroup matter and has no impact on cases with no parallel criminal proceeding, Khuzami said.
Peter Henning, a former SEC attorney who is now a law professor at Wayne State University in Detroit, said “given the admission of guilt in the criminal case, it’s hard to see how this would have any impact.”