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SEC: In future, some fraud to require more than just settlements

It's perhaps one of the most common situations seen in securities fraud cases. A business or individuals accused of doing something in violation of securities law come to terms through a settlement with the government regulators. It is a practice San Diego attorneys experienced in securities litigation have seen often.

The agreement typically means that investors who lost money because of fraud or some other financial malfeasance get at least some portion of their cash back. But it also is usually accompanied by a disclaimer that says that the deal doesn't represent an admission by the company or the individual that they did anything wrong.

That is about to change.

The head of the Securities and Exchange Commission announced recently that going forward, in extreme cases involving the biggest settlements, those responsible will no longer be able to flash that disclaimer. They will have to admit wrongdoing.

The practice of using the "no admit or deny" language has been around a long time and officials note it will continue to be used in most cases. They say it has proven to be a useful means of resolving cases quickly and getting investors compensated. They note that the SEC's power is only in the domain of civil courts, so "no admit or deny" helps avoid protracted litigation.

The reason the policy is changing for the bigger cases apparently has to do with criticism from various quarters, including from some federal judges. A number of big-ticket settlements stemming from the conduct of financial firms ahead of the Great Recession came in for particular scrutiny.

In 2011, a judge rejected a $285 million settlement with Citigroup over mortgage securities sales. He said that because of the lack of an admission to the allegations he couldn't say it was fair.

In April of this year, another judge signed off on a $602 million compensation deal in an insider trading case. He determined the settlement to be fair but expressed concern that those paying were erasing the allegations without admitting to anything. 

Source: Claims Journal, "SEC to Require Mea Culpas in Some Big Settlements," Marcy Gordon, June 20, 2013

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