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Financial Services Law Insights and Observations

SEC Announces Change to Settlement Policy in Securities Fraud Cases



On January 6, multiple media outlets reported that the Securities and Exchange Commission (SEC) announced a policy change related to settlement of securities fraud cases. Under the new policy, settling defendants no longer will be permitted to neither admit nor deny civil liability, while concurrently being convicted of, or admitting guilt with regard to, criminal charges. The policy change also will apply to civil cases in which a defendant has entered into a deferred or non-prosecution agreement in a parallel criminal matter. Under the traditional SEC approach, a defendant found guilty of criminal conduct still could settle civil claims brought by the SEC without admitting or denying those civil charges. Going forward, in cases with parallel criminal actions, the SEC will (i) remove the "neither admit nor deny" language from its settlement agreements, (ii) recite the fact and nature of the criminal conviction, and (iii) allow staff to determine whether to include in the settlement facts obtained from the criminal conviction. The SEC's current prohibition on defendants denying the SEC's allegations or making statements those allegations are without merit will be retained. The new policy will not alter the "neither admit nor deny" approach used when settling cases that involve neither a criminal conviction nor allegations of criminal law violations.