U.S. securities regulators said on Friday that defendants can no longer settle civil cases using neither admit nor deny language if they have already admitted to wrongdoing in parallel criminal cases.

The policy change, announced by Securities and Exchange Commission Enforcement Director Robert Khuzami on Friday, applies only to instances where a defendant has already admitted to violating criminal laws.

It comes just over a month after a federal judge in New York rejected a proposed $285 million settlement between the SEC and Citigroup, in part because the bank had not admitted to wrongdoing. However, in that case, no parallel criminal charges have been filed.

It seemed unnecessary for the SEC to include its traditional neither admit nor deny approach if a defendant had already been criminally convicted of the same conduct, Khuzami said.

For years companies have admitted to a narrow set of facts in resolving a criminal case with the Justice Department, while neither admitting nor denying more colorful language in an SEC complaint.

In one of the most egregious examples, Bernard Madoff pleaded guilty for his role in a multi-billion dollar Ponzi scheme in 2009, but neither admitted nor denied the allegations in a settlement with the SEC.

It was ludicrous to say the defendant does not admit charges that he's already pled criminally guilty to, said John Coffee, a professor at Columbia Law School.

More recently, insurance brokerage firm Aon admitted to accounting errors to resolve criminal bribery charges with the Justice Department last month, but neither admitted nor denied related allegations from the SEC.

The practical impact of the change could be limited.

Since defendants will not be required to admit to allegations beyond those in a criminal case, it could do little to help private litigants sue on similar grounds, a concern companies have long raised.

It is a very small, marginal change, but it does make them look more flexible, Coffee said.

'LOOKED PRETTY SILLY'

In rejecting the Citigroup accord, U.S. District Judge Jed Rakoff said the SEC's failure to require Citigroup to admit or deny its charges left him with no way to know whether the settlement was fair. Rakoff also called the $285 million payout pocket change for the third-largest U.S. bank.

The Citigroup settlement was intended to resolve charges that the firm sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt.

The SEC policy change comes after a review by senior enforcement staff that began last spring, Khuzami said, and is unrelated to the Citigroup ruling.

Still, James Cox, a professor at Duke Law School, said the policy change appeared to be an attempt to calm criticism over the force of its settlements.

My take on things is it is all about managing the press, said James Cox, a professor at Duke Law School. The agency looked pretty silly before Judge Rakoff the other day, he said.

The policy change could have some drawbacks, according to Rob Blume, a partner at Gibson Dunn, who said it may drag out negotiations as it forces the parties to try to overlay criminal admissions to a broader civil complaint.

The two agencies have different mandates in approaching cases, so perfectly aligning the two could be difficult, Blume said.

FIGHTING IN CONGRESS, THE COURTS

The SEC has fought back against criticism of its settlements on multiple fronts.

The same day Rakoff denied the settlement, SEC Chairwoman Mary Schapiro asked Congress to allow the SEC to impose larger monetary penalties.

The SEC has also appealed Rakoff's rejection of the settlement, saying in December it believes Rakoff erred by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits.

The SEC got into hot water with Rakoff again last week, when he chastised the agency for keeping him out of the loop on its efforts to salvage the case.

When Rakoff issued a ruling opposing any delay in the case last Tuesday, the 2nd Circuit Court of Appeals had granted a temporary stay 78 seconds earlier.

A motions panel on January 17 will consider the SEC's bid for a longer delay as it appeals Rakoff's ruling.

(Reporting By Sarah N. Lynch and Aruna Viswanatha; editing by John Wallace and Carol Bishopric)

(This version changes the headline and first sentence to properly reflect new SEC policy)