Importantly, the renewed focus on accounting and internal controls is accompanied by a new, aggressive policy that the SEC will seek admissions in some cases, rather than settling on a “no admit, no deny” basis. The “no admit, no deny” policy encouraged corporations to settle because it allowed a corporate defendant to forego time-consuming and expensive litigation while simultaneously avoiding the reputational harm and collateral consequences that would come from an admission of wrongdoing. In particular, the policy provided corporations alleged with wrongdoing protection from liability for these reasons: 1) If the corporation litigates and loses, issue preclusion could mean almost automatic additional liability in the inevitable subsequent suit by private plaintiffs. 2) Although an admission of wrongdoing in a settlement does not satisfy the requirements for issue preclusion, the admission nonetheless could provide substantial negative evidence in any future private suit. Chair White, however, has stated that the SEC increasingly will strive for admissions because of the added measure of public accountability. Adding to the sting of requiring an admission, the SEC Enforcement Staff will not consider the collateral consequences of an admission on the company. This means that an admission will have a ripple effect on a corporation and its shareholders. Importantly, Chair White also has stated that the agency will increasingly push for aggressive penalties because of the deterrent effect that can be accomplished by large settlements and penalties.
In tandem with a departure from the “no admit, no deny” policy is an increased willingness by the SEC to go to trial, or at least institute an administrative proceeding. Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), penalties in administrative cease-and-desist proceedings could be levied only against regulated entities such as broker-dealers or investment advisors. Now, under Section 929P of Dodd-Frank, the SEC has the authority to seek a civil monetary penalty in an administrative proceeding against any individual or company. This change likely will incentivize the SEC to file administrative proceedings because of the numerous advantages such proceedings afford. For example, administrative proceedings are heard by an administrative law judge (ALJ) employed by the SEC. There is no right to a trial by jury in an administrative proceeding. Moreover, although a challenge to an ALJ decision is heard de novo, the appeal is made to the SEC Commission itself.