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January 25, 2012

SEC Modifies 'Confirm Nor Deny' .

WASHINGTON—The Securities and Exchange Commission will no longer allow companies to settle its civil cases by neither admitting nor denying guilt if at the same time the companies admit to or are convicted of criminal wrongdoing.

The agency characterized the changes as minor. In a statement Friday, Robert Khuzami, the SEC’s director of enforcement, said the new policy would apply only to “a minority” of its cases.

Notably, the changes would have no impact on the SEC’s proposed $285 million settlement with Citigroup Inc., which was rejected by a federal judge in November. Citigroup hasn’t been convicted of or admitted to criminal wrongdoing in the matter, involving allegedly faulty disclosures tied to a 2007 mortgage-bond deal.

U.S. District Court Judge Jed Rakoff criticized the SEC’s boilerplate “confirm nor deny” language in the proposed settlement, saying that it was hard to tell what the SEC got out of the agreement “other than a quick headline.”

The SEC is appealing Judge Rakoff’s decision and maintains it would be unwise for the SEC to be forced to reject proposed settlements simply because a company refused to admit guilt.

Mr. Khuzami said the policy change came after a review by senior enforcement staff last spring and separate discussions with commissioners “over the last several months.” It was formally modified last week.

In the statement, Mr. Khuzami said it “seemed unnecessary for there to be a ‘neither admit’ provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding.”

Unlike other law-enforcement agencies such as the Federal Trade Commission or Justice Department, which allow defendants to deny civil charges in settlements, the SEC prohibits defendants from denying the agency’s findings. That doesn’t change with the policy shift and the SEC wouldn’t require firms to admit guilt if they have already done so in criminal cases addressing the same misconduct.

However, the change would have altered—if only superficially—some of the more high-profile settlements involving parallel civil and criminal matters during the past year, including those involving bid-rigging in the municipal-bond market. Five large financial institutions, including UBS AG and J.P. Morgan Chase & Co., have all entered into settlements with the SEC in the past year in which they neither admitted nor denied the agency’s findings while simultaneously admitted to criminal wrongdoing with the Justice Department.

Better Markets, a Wall Street watchdog that believes the SEC should be less inclined to settle cases, characterized the policy shift as “window-dressing and meaningless PR spin to make people think they are doing their job.”


Read full Wall Street Journal article here.

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