The SEC’s long-standing “neither admit nor deny” settlement policy has been the focus of posts on this site for approximately 15 years.
Yesterday, the SEC rescinded the policy.
The SEC release states:
“The Securities and Exchange Commission today rescinded a policy, codified in Rule 202.5(e) of its informal rules of procedures, stating that when it chooses to settle an enforcement action in which a sanction is imposed, it will not settle unless the defendant or respondent also agrees not to publicly deny the allegations in the complaint or administrative order. Rescinding Rule 202.5(e) aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors. The recission recognizes that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the Commission is trying to shield itself from criticism.”
The release further states:
“For more than 50 years, the Commission has conditioned settlement on a defendant’s promise not to publicly deny the Commission’s allegations. I am pleased that we are rescinding the no-deny policy today,” said SEC Chairman Paul S. Atkins. “Speech critical of the government is an important part of the American tradition. This recission ends the policy prohibiting such criticism by settling defendants.”
There is no known instance of the Commission seeking to reopen an administrative or civil proceeding as a consequence of a defendant or respondent violating a no-deny provision to which they have consented.
In light of the recission of Rule 202.5(e), the Commission will not enforce existing no-deny provisions that have already been entered. In the event of a breach of an existing no-deny provision, the Commission will take no action to ask a district court to vacate a settlement (or to reopen an adjudicatory proceeding) in connection with the terms of the settlement agreement.
The Commission generally does not require settling defendants to admit to allegations. Today’s recission does not affect the Commission’s practice related to admissions in settlements and does not affect the Commission’s discretion to settle with defendants who decline to admit facts or liability or its discretion to negotiate for admissions as part of a settlement.”
SEC Commissioner Hester Peirce, long a critic of the settlement policy, released the following statement.
“[T]he Commission rescinded its decades-old no-admit/no-deny policy governing the settlement process. Under this policy, settling defendants cannot publicly deny the allegations in a complaint or permit anyone else to do so. The Commission will no longer require and demand that defendants in its enforcement actions curtail their right to speak as a condition of settlement. For reasons I have explained before, this result is good and brings the Commission into alignment with nearly every other part of the federal government. Settlements shrouded in forced silence by the non-governmental party do not serve either the markets or the Commission’s investor-protection mission. To the contrary, people’s freedom to speak against the government contributes to its ability to govern well. Transparent enforcement of the securities laws helps create the environment in which free markets thrive, and enabling both parties in an enforcement action to speak freely contributes to transparency.
Ending this imprudent policy, of course, does not mean that the Commission will stop resolving cases through settlement. The excellent investigative work of our professional, dedicated staff stands on its own ground, notwithstanding a defendant’s protestations of innocence. The public now will be able to assess the Commission’s case in light of a defendant’s denials. The result, I expect, will be what free speech often produces: somewhere between cacophony and euphony—neither terribly pleasing to the ear, not entirely unpleasant to hear. That the noise happens at all, however, is a substantial step forward for both the Commission and the right of a free people to speak their mind.”
