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Banks Can't "Neither Admit nor Deny" in SEC Settlements... Sorta

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BANKING CRISIS
DailyFeed
The neither-admit-nor-deny policy has been used for many years by banks in securities fraud settlements with the Securities and Exchange Commission, or SEC, but it may increasingly be a thing of the past.

Dealing the first big blow was, of course, US District Judge Jed Rakoff, who struck down the $285 million settlement that the SEC had struck with Citigroup (C) over fraud investigations into the bank’s mortgage-backed securities deals.
 
Now, the New York Times reports that soon, the SEC will no longer allow companies to say that they neither admit nor deny the charges the commission places against them, but only if they have simultaneously pleaded guilty to or been convicted of criminal charges.
 
One such example was when both the SEC and the Justice Department charged Wachovia of profiting from rigging bids in municipal bond reinvestment transactions in 25 states and Puerto Rico.

In the Justice Department settlement, Wachovia said it “admits, acknowledges and accepts responsibility for” manipulating the bidding process in the sale of derivatives on tax-exempt bonds to institutional investors like cities, hospitals and pension plans over a six-year period ending in 2004.

But in fashioning a settlement with the S.E.C. based on the same facts, Wachovia agreed to settle the charges “without admitting or denying the allegations.”

Under the proposed change to the SEC’s policy, which will be made public soon, Wachovia, which was acquired by Wells Fargo (WFC), would not have been able to neither admit nor deny the SEC charge.
 
However, the majority of settlements that the SEC reaches with financial firms, such as the aforementioned Citi settlement or the ones with Goldman Sachs (GS) in 2010 and Dow Jones (^DJI) component Bank of America (BAC) in 2009, do not involve other government agencies, so these will continue to allow the use of “neither admit nor deny language.” In other words, there is change, but only a little.
 
Still, it is good to see the SEC taking active, if baby, steps towards holding financial firms to greater accountability. We shall see how the new policy will affect settlement procedures in fraud cases going forward.
 
(See also: Will We Ever Learn the Facts of the SEC-Citi Case?)
POSITION:  No positions in stocks mentioned.

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