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SEC changes policy on liability admissions in some lawsuits

<i>This post has been corrected, as indicated below.</i>

The Securities and Exchange Commission said Friday it no longer would settle civil suits without an admission of liability in cases in which the defendant has been convicted of criminal violations or admitted to them.

The policy change comes after a federal judge in November rejected a $285 million settlement between the SEC and Citigroup Inc. in which liability was neither admitted nor denied. The judge harshly criticized the agency for imposing a “relatively modest” punishment on large banks for wrongdoing leading up to the financial crisis.

SEC Enforcement Director Robert Khuzami said the new policy was not triggered by U.S. District Judge Jed Rakoff’s rejection of the Citigroup settlement, which the SEC is appealing. That settlement, which would have allowed Citigroup to avoid admitting it defrauded investors over toxic mortgage securities, did not involve a criminal conviction.

The new policy would delete language from some settlements in which the defendant neither admits nor denies the allegations. The change applies to a minority of SEC enforcement actions because few also involve either a criminal conviction or an admission of civil liability, Khuzami said.

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The change was made last week after a review by SEC enforcement officials that began in the spring and after discussions with commissioners, he said. It “seemed unnecessary for there to be a ‘neither admit’ provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding,” Khuzami said.

For the record, 2:45 p.m. Jan. 6: An earlier version of this post incorrectly referred to admissions of guilt in civil lawsuits. Actually, civil cases involve issues of liability.


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