WASHINGTON, June 21 (UPI) -- The head of the U.S. Securities and Exchange Commission said some regulatory settlements in the future will include admissions of guilt by securities violators.
The SEC has lived with a longstanding practice of allowing financial firms to settle complaints against them with a monetary penalty but without an admission of guilt or denial culpability.
SEC Chairman Mary Jo White told The New York Times in an interview some cases will require an admission of guilt or the regulator would be forced to take the firm to trial.
"In the interest of public accountability, you need admissions," White said. "Defendants are going to have to own up to their conduct on the public record. This will help with deterrence, and it's a matter of strengthening our hand in terms of enforcement."
The SEC has been criticized in the past for allowing large firms to duck an admission of guilt and pay fines that are also criticized at times for being just a fraction of the damages done.
Proponents of the "neither admit, nor deny" policy argue it allows for faster compensation for victims. In recent years, however, federal Judge Jed Rakoff has challenged two settlements that required his judicial signature.
In a case involving Bank of America, he rejected a proposed settlement, questioning whether any individual would held accountable, saying the fine was too small and suggesting shareholders, who were the victims in the case, would end up being the ones penalized.
Rakoff called a $285 million settlement with Citigroup "pocket change" and said he couldn't judge whether the size of the penalty was fair because it was not explained what anyone actually did.
Rakoff would not comment on White's policy shift, because the Citigroup case is still being appealed.
Columbia University Law School Professor John Coffee called the new policy "an important step in the right direction."
Brad Karp who represented Citigroup in its settlement Rakoff criticized, said the new policy would give regulators "enormous leverage."
"A financial institution cannot fight a primary regulator and win," he said. "They have you. They have complete leverage over you. Even if you fight and win over a year, the damage will outweigh any litigation result."