This story has been updated.
The U.S. Securities and Exchange Commission is debating whether to push fraudsters engaged in “egregious misconduct” into conceding wrongdoing after an SEC enforcement action, in a move away from longtime policy, the Financial Times reported Wednesday.
Usually, investigations and enforcement actions are settled with defendants neither admitting or denying wrongdoing, though they often pay a fine. That’s been SEC policy since about the 1970s.
But in a new memo to enforcement attorneys, two directors of the SEC enforcement division say that in certain cases, admissions of wrongdoing could be in the public interest.
They specifically mention cases where fraudsters harm many investors, where there’s “egregious intentional misconduct,” and where a defendant obstructs an SEC investigation as examples of situations warranting a frank admission of wrongdoing.
The policy change will probably require the approval of a majority of the SEC’s five commissioners, not just new SEC chair Mary Jo White, who backed the policy on Tuesday, reports Reuters.
House lawmakers questioned the SEC’s current long-standing policy in early 2012, reported the New York Times, after federal judge Jed Rakoff rejected a $285 million settlement between Citigroup Inc. (NYSE:C) and the SEC over mortgage-related fraud.
The SEC previously argued that settlements like these avoided burdensome litigation and helped them focus more on fresh enforcement actions.
Here are excerpts from the memo sent to SEC staff, emailed to IBTimes by SEC spokesman Kevin Callahan:
“There may be certain cases 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. We have been in discussions with Chair White and each of the other Commissioners about the types of cases where requiring admissions could be in the public interest.
Of course, we recognize that insisting upon admissions in certain cases could delay the resolution of cases, and that many cases will not fit the criteria for admissions. For these reasons, no-admit-no-deny settlements will continue to serve an important role in our mission and most cases will continue to be resolved on that basis. We will also continue to strongly defend our discretion to reach such settlements in response to inquiries from courts.
We encourage you to assess each of your ongoing investigations and pending actions with a view to whether the conduct and circumstances warrant consideration of public acceptance of responsibility by the defendant(s).”