Whether and when targets of civil enforcement admit wrongdoing has been in and out of the public spotlight since the 2007-2008 financial crisis, when the issue seemed tied up in frustrations that suspected wrongdoers—especially banks and corporations—were getting off too lightly. And the Securities and Exchange Commission has been at the heart of the debate. Its policy of allowing targets to settle without admitting they did anything wrong prompted judicial rebukes, a public debate, and ultimately an announced policy change in 2013. Admissions would be required when they furthered “public accountability” and “acceptance of responsibility.” The decision to ask for admissions in particular cases was left to the agency’s discretion.
How has the SEC exercised that discretion? Our empirical study of admissions in SEC settlements from FY2011 to FY2017 (An Empirical Study of Admissions in SEC Settlements) addresses that question. Using an inclusive definition of admissions, we identified fewer than 100 settlements containing admissions within the seven years of our study (FY2011-FY2017). The data reflect changes over time. There is an uptick in the number of settlements that contain admissions from FY2014 to FY2017, with a high point in FY2016.
Our data include the underlying terms of the settlement agreements, going beyond the SEC’s summary descriptions. A close examination of the settlements allows us to break down the category of “admissions” into admissions of fact, legal violation (general or specific), and scienter. We identify the prominent role of factual admissions—all but one settlement in our data set included admissions of facts—and the less frequent inclusion of admissions that a law was violated. We also highlight other nuances of the admissions language. We flag, for instance, agreements that preface admission with limiting collateral estoppel language (“Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission….”).
Some admissions were made in matters that might be considered egregious: actions connected with the London Whale or with massive, cross-border pyramid schemes, for instance. However, some of our data suggest that not all of the actions with admissions could be characterized as high-profile. Approximately half of the settling defendants were individuals rather than entities, and almost half of the settlements resulted in low or no monetary sanctions.
Any study of SEC settlements has limits built in. Data about the numbers of settlements captures the end result of negotiations. It cannot address how announced changes in admissions policy might have altered the negotiations that took place behind closed doors and that led to these agreements. Nor does it capture targets’ choices to forego settlement altogether.
At the same time, SEC cases are the tip of the iceberg. Whether to require admissions in settlements is an issue throughout civil enforcement. When a 2012 congressional hearing pulled in multiple financial regulators to justify their settlement and admissions policies, many of them pointed to the prevalence of settlements and, in particular, “no-admit-no-deny” settlements. In other words, financial regulators and others face policy choices that parallel those of the SEC.
Our companion article, Admissions of Guilt in Civil Enforcement, considers multiple enforcement contexts, including other financial regulators, the Environmental Protection Agency, Federal Trade Commission, Department of Justice Civil Division, and the Federal Communications Commission. Some agencies have formal policies that state whether and under what circumstances they will require admissions. But others simply go about the business of enforcement without a policy in place. Examples of their settlement language cover the spectrum from (relatively rare) admissions of wrongdoing to some notably effusive denials. With this broader context in mind, the article develops a framework for financial regulators and other civil enforcement agencies to make choices about their admissions policy. We break down the options, addressing how admissions of wrongdoing interact with denials and identifying more precisely what may be admitted (facts? legal violation? intent?).
The SEC and its policy changes and implementation provide a key case study. But its experience cannot answer the broader normative question. The key policy questions are not just “When do regulators require targets of civil enforcement to admit wrongdoing?” but also “When should they?” We address the latter question in Admissions of Guilt in Civil Enforcement by drawing on the empirical literature for insights into how admissions meet the announced goals of “public accountability” and “acceptance of responsibility.” Of particular importance to regulators are existing studies that suggest that facts and explanation matter more than critics suggest, and that denial or even silence will sometimes be a bad choice for targets, particularly when a target of civil enforcement has already pleaded guilty to a crime based on the same conduct.
Finally, it should be no surprise that this area invites multiple approaches, as the debate over admissions implicates bigger questions. It is in part a debate about the nature of civil enforcement, its relationship to punishment, and whether civil enforcement should borrow its standards from private actions or the criminal domain.
This post comes to us from professors Verity Winship and Jennifer K. Robbennolt at the University of Illinois College of Law. It is based on their recent articles, “An Empirical Study of Admissions in SEC Settlements,” available here, and “Admissions of Guilt in Civil Enforcement,” available here.