Admit or Deny: A Call for Reform of the SEC’s “Neither-Admit-Nor-Deny” Policy

For four decades, the SEC’s often-invoked policy of settling cases without requiring admissions of wrongdoing, referred to as the “neither-admit-nor-deny” policy, went unchallenged by the courts, the legislature, and the public. Then in 2011, a harshly critical opinion from Judge Jed Rakoff in SEC v. Citigroup incited demands for reform of this policy. In response to Judge Rakoff’s opinion, the SEC announced a modified approach to settlements. Under the modified approach, the Commission may require an admission of wrongdoing if a defendant’s misconduct was egregious or if the public markets would benefit from an admission. Many supporters of the neither-admit-nor-deny policy argue that it is the most efficient way to compensate harmed investors. In contrast, many critics condemn the ministerial role of the judiciary in approving SEC settlements. Other interested parties express uncertainty about how aggressively the SEC will pursue admissions under the modified approach and whether admissions will have collateral estoppel effects in subsequent private litigation. Both supporters and critics are mistaken in their approach to the policy, and those in the third category are justifiably uncertain. This Note emphasizes the need for an overhaul of the neither-admit-nor-deny policy, arguing that the policy is plagued by ambiguity, affords too much discretion to the SEC, and does not sufficiently punish wrongdoers. As a result of its use of the neither-admit-nor-deny policy, the SEC fails to achieve the objectives of transparency, accountability, and deterrence that are paramount to enforcing federal securities laws. By requiring specific admissions of wrongdoing in settlements and limiting the preclusive effect of those admissions in private litigation, the SEC would adopt a more aggressive and disciplined approach to enforcement—better serving the public interest—without the risk of costly litigation with defendants who refuse to settle.