Policy change at the S.E.C.

Cathedrals of Wall Street, 1939. Florine Stettheimer, American (Metropolitan Museum)

My first post here at Polizeros was about that Manhattan federal court judge who rejected a proposed settlement between the S.E.C. and Citigroup last November.

The S.E.C. has just announced that it is changing its policy on some settlements.

The Securities and Exchange Commission said on Friday that it was making a major change in how it settles some securities fraud cases, telling companies that they will no longer be allowed to neither admit nor deny the commission’s civil charges when, at the same time, they admit to or have been convicted of criminal violations.

The change will also apply to cases where a company enters an agreement with criminal authorities to defer prosecution or to not prosecute as part of a settlement.

Robert Khuzami, the director of enforcement at the S.E.C., said the agency would continue to use the “neither admit nor deny” settlement process when it alone reaches a deal with a company in a case of civil securities law violations. Those types of cases make up a large majority of its settlements.

Although the SEC is touting this as a major change, it will still leave a certain amount of discretion to its employees, who just might allow personal considerations to affect their decisions.

Under the new policy, a civil settlement will cite the admission of conduct or conviction in the corresponding criminal case, Mr. Khuzami said. But the S.E.C.’s enforcement staff will have discretion whether to use relevant facts from the criminal case in its own court documents for the civil case.

Earlier this year, Project on Government Oversight (POGO) reported on the ethics challenges of what it called  “revolving regulators”  and the S.E.C. One of their findings:

One recent empirical study uncovered several significant and systematic biases in the SEC’s enforcement patterns and found indirect evidence to support the contention that “post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment.”

By the way, on December 15, 2011, Mr. Khuzami announced that the S.E.C. has requested the U.S. Court of Appeals to review Judge Rakoff’s rejection of the Citigroup settlement.

One comment

Comments are closed.