The Securities and Exchange Commission recently qualified its longstanding policy that allowed companies to “neither admit nor deny” their guilt when settling cases, according to a commentary in yesterday's New York Times DealBook blog. The policy tinkering has come in the wake of criticism by lawyers, academics and, most memorably, Judge Jed S. Rakoff of the U.S. District Court in Manhattan. These critics have argued that the public interest is not served when the agency settles cases and imposes sanctions without explaining to the public the basis for the penalty. “There may be certain cases,” the SEC has concluded, “where heightened accountability or acceptance of responsibility through the defendant’s admission of misconduct may be appropriate, even if it does not allow us to achieve a prompt resolution.” Private parties—be they corporate boards, drug manufacturers or divorcing spouses—never have to explain publicly the reasons they are settling civil cases, according to the commentary. It is not clear that the government should be treated differently. What is clear, according to the commentary, is that in securities fraud cases, requiring defendants to admit they committed fraud to settle cases will make it surpassingly easy for private parties to sue over the same conduct. That prospect will actually make the SEC’s job more difficult because defendants will know that, by settling with the SEC and acknowledging wrongdoing, they are opening themselves up to more litigation.
