In a change of course, the Securities and Exchange Commission has begun to discuss the idea of requiring admissions of guilt in civil cases. The possibility of forcing firms to admit guilt has drawn criticism from some circles, as opponents say that the proposal may produce adverse results in enforcement.
In recent times, the SEC has chosen not to force firms to admit guilt, and has instead opted to levy fines as its primary method of enforcement. Proponents of this model say that it helps the SEC avoid protracted litigation and keeps enforcement out of the courts. The SEC itself has previously advocated for no-admission settlements, touting as benefits the avoidance of court costs and a reduction of the risks associated with litigation. The SEC also noted that having fewer trials allows the agency to pursue more enforcement actions, rather than focusing the majority of their resources into a handful of cases.
However, the SEC now believes that requiring admissions of guilt in some cases could prove beneficial. In those cases where the behavior is most egregious, forcing the wrong-doer to admit guilt could help assuage criticism from those who believe that the agency has been too lenient with offenders in the wake of the financial crisis.
Moreover, requiring firms to admit guilt could provide the SEC with increased leverage in settlement negotiations with companies that have failed to adhere to Federal regulations. However, business leaders worry that admitting guilt could expose companies to liability in private suits and class actions. Companies are also reluctant to admit guilt because of the reputational costs that would be associated with admitting the firm had engaged in prohibited practices. In many cases, these two concerns would likely be sufficient to prompt a company to take the issue to court. While lawsuits are poor for public perception and the bottom-line, an admission of guilt could be just as damaging in some cases.
If admissions of guilt sent more cases to the courts, the SEC’s resources could suffer—a result that could limit the agency’s enforcement capacity. However, some believe that the SEC must change course with its penalties if the agency is going to have effective deterrent powers. In a statement to Reuters, NYU professor Baruch I. Lev said that the current penalties are “almost negligible” to companies which generate billions of dollars in revenue each year.
New SEC Chairman Mary Jo White has stated that “strengthening enforcement will be a high priority”, and requiring admissions of guilt could be the first demonstration of that commitment.