In 2012, the SEC announced that it would no longer enter into “neither admit nor deny” settlements with companies or individuals who had admitted relevant facts in parallel DOJ dispositions. Since then, the SEC has made good on that promise by requiring such factual admissions in resolving FCPA cases, but only to the extent covered by the DOJ pleadings — implicitly leaving other allegations under the usual neither admit nor deny approach.
Recently, the SEC amended this policy, stating that it would push for admissions as a condition of settling the most “egregious” cases. We expect the SEC to face tough questions about how to enforce this new policy, especially in the FCPA context.
So what is an “egregious” case requiring an admission? The SEC may take the view that any case with a parallel criminal proceeding is “egregious.” But what happens when those parallel criminal proceedings end in acquittal or dismissal? In theory, those cases remain “egregious” even if prosecutors did not prevail. After all, criminal violations of the securities laws (including the FCPA) are particularly serious, and prosecutors believed there was sufficient evidence in those cases to bring criminal charges in the first place. On the other hand, the SEC may decide that holding out for an admission or proceeding with a follow-on civil trial is not a wise use of its limited resources. Requiring an admission can delay resolution of a matter, and the parallel criminal proceeding (even if ultimately unsuccessful) may have established a sufficient factual record from which the public may judge the defendants’ conduct for themselves.
The SEC’s new policy may be tested sooner than it thinks, especially in the FCPA context where the DOJ has taken an increasingly aggressive posture — with mixed results — in recent years. In January 2012, for example, the court dismissed FCPA charges against John O’Shea, a former vice president of ABB Network Management. While O’Shea personally was not named in a parallel SEC action, his company was. Similar fact patterns have emerged outside the FCPA context, where defendants have prevailed in parallel criminal proceedings. Some recent examples include David Finnerty, David Stockman, Ralph Cioffi and Matthew Tannin.
And so, the next time the SEC files an FCPA-related enforcement action, it eventually may face a tough decision if parallel criminal charges are later dismissed — whether to insist on an admission, or proceed to trial.
This post is adapted from an article that first appeared on Law360 availble here (.pdf).
Christopher LaVigne is counsel in Shearman & Sterling’s New York office and a former member of the Securities and Commodities Fraud Task Force in the U.S. Attorney’s Office for the Southern District of New York. He can be contacted here.
The views are those of the authors only, and not of Shearman & Sterling LLP.