When SEC Chair Mary Jo White took the reins of the agency last year, one of her first and most highly publicized initiatives was to re-examine the SEC’s policy on “no-admit, no-deny” settlements, meaning settlements in which the defendant neither admits nor denies liability for the alleged securities violations. Prior to Chair White’s tenure, the vast majority of SEC enforcement actions were resolved on this basis, leaving some courts and commentators concerned that wrong-doers were evading public accountability for their actions. In a speech to the Council of Institutional Investors on September 26, 2013, Chair White announced that, in certain cases, the SEC would no longer allow such “no-admit, no deny” settlements, but would instead demand admissions of wrongdoing. As Chair White explained, the “candidates” for such cases include:
Since September, the SEC has made it clear that it intends to put these new guidelines into practice, and has already announced several major settlements that include admissions of wrongdoing, including a $2.5 million settlement with Scottrade for failing to provide accurate trading data to the SEC and a massive $196 million settlement with Credit Suisse for providing investment advisory and brokerage services in the U.S. without registering with the SEC.
- Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
- Cases where the conduct posed a significant risk to the market or investors.
- Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
- Cases where reciting unambiguous facts would send an important message to the market about a particular case.
So, what does the SEC’s new focus on obtaining admissions mean for current and potential SEC whistleblowers? While this policy initiative is new, it’s likely that the SEC will seek admissions in at least some enforcement actions that arise as a result of whistleblower tips; in those cases, it is likely to take longer for the SEC and the defendant(s) to reach a settlement, meaning that it will also take longer for the whistleblower(s) to receive any potential monetary award. In some cases, defendants may opt to take their chances at trial rather than accept an admission of wrongdoing and the collateral consequences that might flow from such admissions, such as an increased risk of liability in private shareholder suits. While the SEC has a strong trial track record – victories in over 75% of the agency’s cases in each of the last three years – litigation also can extend the time it takes to resolve cases and grant any related whistleblower awards.
Nonetheless, it’s important for potential whistleblowers to recognize that, even with the SEC’s heightened emphasis on admissions, it remains likely that a significant majority of SEC cases, including those involving whistleblowers, will continue to be resolved on a no-admit, no-deny basis. And, as both the Scottrade and Credit Suisse matters reflect, the SEC can and will successfully settle major cases even where it does demand an admission of wrongdoing. Thus, the policy change should not deter potential SEC whistleblowers from coming forward. It does, however, send a vital message to both the public and potential wrongdoers that the SEC is willing to demand accountability from defendants, even where it requires a tough fight. In our view, a tougher, stronger SEC is better for whistleblowers, and for the investors whom whistleblowers seek to protect.
U.S. Financial Services Industry survey results were released
today. The survey
confidentially polled financial professionals on corporate ethics, wrongdoing in
the workplace and the role of financial regulators in policing the marketplace.
The results suggest that the financial services industry faces a serious and
growing ethical crisis.
To learn more, download the survey and the infographic.