Should Wall St. Firms Admit Liability in SEC Settlements?

Should Wall St. Firms Admit Liability in SEC Settlements?

 An important appeals court this month has us all talking again about SEC settlements with big banks. Several years ago a lower court rejected a $285 million settlement with Citibank over alleged misleading claims in the mortgage business. The federal judge reviewing the settlement said it was not “fair or reasonable” unless Citibank admitted liability, which was not part of the plan. Until then, in most settlements large fines were paid with no admission or denial of liability. The Citibank parties appealed, and the appellate court now says that judge overstepped his authority and has reversed him.

Since the lower court decision the SEC has said it now will seek more admissions of guilt in civil enforcement settlements and has been doing so. Will this appellate decision change that? Unclear. Does it matter? I guess that is for you to decide.

Some say bad behavior in big banks is not discouraged by mere financial penalties which seem large but are barely noticeable to the bottom line. The admission of guilt, they say, brands the bank an admitted law breaker and the embarrassment is very much to be avoided. Others believe the sting of the financial penalty is sufficient and it allows cases to settle more quickly avoiding taxpayer expense of a long battle. Your thoughts?

Read additional articles at the David Feldman Blog.

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