Article New York Law Journal

The SEC’s New Approach to Neither-Admit-Nor-Deny Policy May Not Be So New After All

In this contributed article for New York Law Journal, attorneys Dan Chaudoin, Daniel Kearney, Zachary Brez and William Osberghaus discuss the SEC’s newly appointed Director of the Division of Enforcement's recent announcement of a potentially significant change to its neither-admit-nor-deny policy, indicating that the SEC will require admissions in certain matters.

Since 1972, the Securities and Exchange Commission (SEC) has generally allowed companies and individuals to settle civil enforcement investigations without admitting the SEC’s allegations, provided that the settling party also does not deny them. See Securities Act Release No. 5337, Exchange Act Release No. 9882, Investment Company Act Release No. 7526 (Nov. 28, 1972) (codified at 17 C.F.R. §202.5(e)). The SEC’s newly appointed Director of the Division of Enforcement, Gurbir Grewal, recently announced a potentially significant change to that policy, indicating that the SEC will require admissions in certain matters. Specifically, Grewal stated that, “in an era of diminished trust, [the SEC] will, in appropriate circumstances, be requiring admissions in certain cases where heightened accountability and acceptance of responsibility are in the public trust.” Gurbir Grewal, Director, Division of Enforcement, Remarks at SEC Speaks 2021 (Oct. 13, 2021). He further explained that “[a]dmissions, given their attention-getting nature, also serve as a clarion call to other market participants to stamp out and self-report the misconduct to the extent it is occurring in their firm.” Id.

News reports highlighted the importance of Grewal’s announcement—and rightly so, as it marks a potentially significant change. Still, the announcement prompts more questions than answers: What are the “appropriate circumstances” in which the SEC will require admissions? In what types of cases does the SEC believe “heightened accountability and acceptance of responsibility are in the public trust”? Companies and individuals facing civil SEC enforcement investigations will need to carefully monitor the SEC’s new approach and consider its implications for potential settlement options. This is especially true for individuals who act as corporate “gatekeepers,” such as attorneys, compliance personnel, and auditors, whom Grewal said “will remain a significant focus” for the SEC. Id.

Criticisms of the SEC’s Neither-Admit-Nor-Deny Policy

While Grewal’s announcement was significant, its departure from the SEC’s traditional neither-admit-nor-deny policy is not unprecedented. In fact, that policy had been under significant attack over the last decade. Following the 2008 financial crisis, media and elected officials challenged the effectiveness of the policy (and the SEC more generally) in holding wrongdoers accountable. Federal judges questioned the policy as well. One notable example was Judge Jed Rakoff. In November 2011, he refused to approve a proposed settlement between the SEC and Citigroup because he did not believe the proposed settlement provided enough “proven or admitted facts” to inform his “independent judgment” regarding whether the settlement was “fair, reasonable, adequate, and in the public interest.” S.E.C. v. Citigroup Global Mkts, 827 F. Supp. 2d 328, 330 (S.D.N.Y. 2011). (His decision was ultimately reversed on appeal. S.E.C. v. Citigroup Global Mkts, 752 F.3d 285 (2d Cir. 2014).)

In apparent response to such criticism, SEC Chair Mary Jo White, a former federal prosecutor, announced in 2013 that the SEC would require admissions from companies and individuals in certain “cases where … it’s very important to have that public acknowledgment [of wrongdoing] and accountability.” Jean Eaglesham and Andrew Ackerman, SEC Seeks Admissions of Fault, Wall St. J. (June 18, 2013). Later that year, White provided additional guidance on when admissions would be required, including:

  • “[c]ases where a large number of investors have been harmed or the conduct was otherwise egregious”;
  • “[c]ases where the conduct posed a significant risk to the market or investors”;
  • “[c]ases where admissions would aid investors deciding whether to deal with a particular party in the future”; and
  • “[c]ases where reciting unambiguous facts would send an important message to the market about a particular case.”

Mary Jo White, Deploying the Full Enforcement Arsenal (Sept. 26, 2013).

Grewal’s announcement harkens back to the approach White outlined in 2013. Both focus on the need for heightened public accountability and acceptance of responsibility by the settling party. Indeed, SEC Staff expanded on Grewal’s announcement, highlighting many of the same criteria White described in 2013, including “egregious misconduct”; “where the markets or a large number of investors were either harmed or placed in significant risk of harm”; “cases where the bad actor engaged in behavior that obstructed the [SEC’s] processes”; and “cases where admissions would greatly amplify the deterrence effect of the action.” Kenneth Corbin, SEC’s New Top Cop Wants Tougher Penalties for Wrongdoers, Barron’s (Oct. 15, 2021). It is fair to say that White’s 2013 approach lives on in Grewal’s newly-announced approach.

Implications Going Forward

Despite the neither-admit-nor-deny policy’s lineage, the approach under Grewal could take on a more aggressive form. Some have observed that the SEC’s approach under White was not as “transformative” as might have been expected. See Verity Winship and Jennifer K. Robbennolt, An Empirical Study of Admissions in SEC Settlements, 60 Ariz. L. Rev. 1 (2018). In the three full years following the announcement of White’s approach, the SEC obtained admissions from “well under two percent of the individuals and entities charged.” David Rosenfeld, Admissions in SEC Enforcement Cases: The Revolution That Wasn’t, 103 Iowa L. Rev. 113 (2017). The percentage of settled enforcement actions that contain admissions will almost certainly increase compared to the SEC under Chair Jay Clayton, which reverted to the traditional neither-admit-nor-deny policy. But it may increase compared to the SEC under White as well.

Grewal’s announcement was also notable for its aggressive stance towards individual liability for corporate executives. For example, Grewal praised officer-and-director bars as a “critical tool” in the SEC’s remedial toolbox. Under Grewal, the SEC may seek an officer-and-director bar against an individual, even if that individual does not serve as an officer or director, or even an employee, of a public company. The SEC may do so if there is “a chance the person could have the opportunity to serve” as a public company officer or director in the future, so as “to keep that person from being in a position to harm investors again.” Corporate executives should be mindful that any corporate admission of misconduct in a settlement could be used in the SEC’s subsequent pursuit of an officer-and-director bar or other remedies against them.

More generally, settling parties should carefully consider other collateral consequences prior to admitting misconduct when entering into settlement. For example, factual admissions can carry significant reputational risk, especially when the admission relates to intentional misconduct. Factual admissions also carry significant collateral litigation risk, as private plaintiffs could seek to use them to their advantage in future litigation. Corporate executives, especially those facing potential criminal exposures, should be especially careful. Their D&O insurance policy may not indemnify them if they admit to wrongdoing. The phrasing of the findings or allegations that are admitted is very important, and potential respondents should seek to reduce collateral risks as much as possible.

Finally, it remains to be seen whether other regulators will follow the SEC’s lead and pursue similar policies of requiring admissions to settle enforcement investigations. Back in 2015 the Director of the PCAOB’s Division of Enforcement and Investigations announced that the Division would seek admissions “in appropriate matters where heightened accountability and acceptance of responsibility are in the public interest.” Claudius B. Modesti, Director of Enforcement, Modification to Settlement Recommendations for Disciplinary Proceedings (Oct. 2, 2015). And while he was at the Federal Trade Commission, the current Director of the Consumer Financial Protection Bureau expressed concern about settlements that did not contain admissions of wrongdoing. See, e.g., Statement of Commissioner Rohit Chopra Joined by Commissioner Rebecca Kelly Slaughter, Regarding Final Approval of the Sunday Riley Settlement (Nov. 6, 2020). The SEC’s approach could lead other financial regulators to adopt a similar settlement policy as well.


In announcing the new approach to the SEC’s traditional neither-admit-nor-deny policy, Director Grewal highlighted requiring admissions as one of many “prophylactic tools … to protect investors and the marketplace.” Gurbir Grewal, Director, Division of Enforcement, Remarks at SEC Speaks 2021 (Oct. 13, 2021). He also stated that the SEC Staff will “recommend aggressive use” of these tools. Id. While it remains to be seen whether the SEC is simply returning the approach under White or whether the SEC will adopt an even more expansive approach, there is every reason to believe that Grewal will pursue an aggressive approach. We expect, in the coming years, that the SEC will regularly seek admissions in settling significant enforcement matters.

Reprinted with permission from the December 3, 2021 edition of New York Law Journal. Further duplication without permission is prohibited.