Skip to main content

The Globe and Mail

SEC amends policy on corporate admission of guilt

The Securities and Exchange Commission headquarters in Washington, D.C.


The U.S. Securities and Exchange Commission is preparing to scale back its use of settlement deals without admissions of guilt just as the Ontario Securities Commission is examining whether to adopt the practice.

SEC enforcement director Robert Khuzami announced Friday that the regulator will no longer let companies settle civil cases without admitting to or denying the charges, if they have already admitted to wrongdoing in a parallel criminal case.

Mr. Khuzami said the change will apply in limited circumstances where a criminal case has been concluded in the same matter.

Story continues below advertisement

The SEC amendment would not have affected a $285-million (U.S.) settlement with Citigroup Inc., which was rejected in November by a federal judge in New York on the grounds that the bank had not made any admissions of wrongdoing. There were no criminal charges filed in the Citigroup case, which spurred public debate about the use of settlement deals that don't require admissions of guilt.

The SEC said its new policy change is "separate from and unrelated to" the Citigroup decision, which it has appealed.

In October, the OSC proposed a policy that would allow similar "no contest" settlements to speed up enforcement matters and encourage more people to co-operate with investigators. But in December, the Ontario regulator said it had received a flood of input on the proposal and had decided to extend the comment period to Jan. 16, from the initial Dec. 20 date. It will also take the rare step of holding a public hearing on the proposal.

The practical impact of the U.S. change could be limited. "It is a very small, marginal change," said John Coffee, a professor at Columbia Law School. "It does make [the SEC]look more flexible … It was ludicrous to say the defendant does not admit charges that he's already pled criminally guilty to."

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

In one of the most egregious examples, Bernard Madoff pleaded guilty for his role in a multibillion-dollar Ponzi scheme in 2009 – but neither admitted not denied the allegations in a settlement with the SEC.

The Ontario regulator had already proposed using the new power in limited circumstances that do not involve criminal matters. When the policy was unveiled in October, OSC enforcement director Tom Atkinson said such settlements would only be available to people or companies who co-operate early in an OSC investigation and haven't been in other legal trouble.

Story continues below advertisement

The powerful Canadian Coalition for Good Governance, which represents most of Canada's largest institutional investors, is not in favour of no-contest settlements.

Without the stigma of admitting wrongdoing, settlements will become a "cost of doing business" for market participants and will have little deterrent effect, CCGG chairman Daniel Chornous said in a submission to the OSC.

"In our view, requiring a party to admit the truth of the allegations made by OSC staff is an important aspect of any settlement," he said.

With files from Reuters

Report an error Licensing Options
About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.