If you get busted doing bad things to investors, you had better watch out: The nation's top securities watchdog might, on very rare occasions, actually make you admit that you did something wrong.
This tough-as-nails new stance by the Securities and Exchange Commission was announced on Tuesday by its new chairman, Mary Jo White, a former federal prosecutor renowned for her reported toughness. At the Wall Street Journal's CFO Network Conference in Washington, D.C., she told the WSJ's Francesco Guerrera that the agency was no longer going to just settle all of its fraud and abuse cases by letting the accused get away without admitting or denying wrongdoing. In some cases, she said, the SEC will actually try to force some admissions of wrongdoing.
"We are going to, in certain cases, be seeking admissions going forward," White said in a video of the interview (see above). "Public accountability in particular kinds of cases can be quite important."
Lest we get too excited about what the WSJ calls a "watershed change" to "decades-old" SEC policy, White made it abundantly clear that she really prefers letting accused firms get off without admitting or denying wrongdoing.
"You can settle quicker, you have no litigation risk," when companies settle without admissions of wrongdoing, she said. "In terms of investors, you get money out quicker. I think that's always going to be a major, major tool in the arsenal."
White said the SEC will decide case-by-case when to seek admission, depending on "how much harm has been done to investors, how egregious is the fraud."
But again, just in case there was any doubt, she made it clear that most of the time, there would be no such admissions:
"Again I emphasize how important the no-admit no-deny protocol also will remain for the majority of cases," she said.
The SEC's reluctance to get firms to admit to their misdeeds has become discomfiting since the financial crisis. High-profile cases involving toxic mortgage-backed securities sold by Goldman Sachs and other banks have been settled without such admissions. That has raised the ire of the public, lawmakers like Elizabeth Warren (D-Mass.) and some federal judges, like U.S. District Court Judge Jed Rakoff, who rejected an SEC settlement with Citigroup because of a lack of admission.
No-admit settlements help the banks avoid being sued by investors, the WSJ points out, adding to a general sense that the government's top priority is to treat the banking sector with tender loving care, rather than seek justice. It goes hand-in-hand with the government's reluctance to bring criminal charges against banks or bankers. Attorney General Eric Holder recently vowed that no bank was too big to prosecute, but it is still doubtful that the government would actually ever prosecute our biggest banks.
It is also doubtful that the SEC would ever force our biggest, most important banks to admit wrongdoing in a fraud case. That really would be a watershed.