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Here’s more news from this Cooley news brief by Cydney Posner:

This article from the New York Times provides a bit more color on the SEC Chair’s decision to refuse to allow defendants in some cases to settle without admitting wrongdoing. (See my blog from last week.)

In an interview, Mary Jo White said that admissions “will help with deterrence, and it’s a matter of strengthening our hand in terms of enforcement.” She did, however, repeatedly emphasize that that “most cases would still be settled under the prevailing ‘neither admit nor deny’ standard, which, she said, has been effective at encouraging defendants to settle and speeding relief to victims.” “Although she acknowledged that “‘Judge Rakoff and other judges put this issue more in the public eye, … it wasn’t his comments that precipitated the change….I’ve lived with this issue for a very long time, and I decided it was something that we should review, and that could strengthen the S.E.C.’s enforcement hand.'” In addition, the author quotes Ms. White as saying that “‘our aim is to apply this policy in appropriate cases, and we’ll do this in the public interest….Will this lead to more cases going to trial? It’s hard to say going in, but it might. We have to be prepared to go to trial, and we have to make people believe we’re prepared.'”

In addition, in a memo to the enforcement staff, the co-directors of the SEC’s enforcement division said “there might be cases that ‘justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement….Should we determine that admissions or other acknowledgment of misconduct are critical, we would require such admissions or acknowledgment, or, if the defendants refuse, litigate the case.’ The article reports that the memo “cites three criteria: ‘misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm’; ‘egregious intentional misconduct’; or ‘when the defendant engaged in unlawful obstruction of the Commission’s investigative processes.'”

The author of the article contends that “[r]elatively few of the high-profile financial crisis cases, including the big mortgage fraud cases …, would seem to meet those criteria, because the misconduct that was alleged wasn’t that egregious, the evidence in some cases was ambiguous, and the victims were limited to a few sophisticated financial institutions rather than large numbers of the investing public.” However, Ms. White declined to comment on any specific cases, indicating that “[n]o one case precipitated this. From this point forward, we’ll be looking for appropriate cases in which to apply the policy.”

Besides the memos I am posting in our “SEC Enforcement” Practice Area, here are related articles:

– Lane Powell’s Doug Greene’s “SEC’s Shift in No-Admit-or-Deny Policy Would Create Dilemma for Defendants if Applied in Close Cases”
– WSJ’s “SEC Gets Set to Test Policy for Guilt Admissions”
– Reuters’ “SEC commissioner urges selective use of new settlement policy”
– WSJ’s “Where the SEC Action Will Be”
– CNBC’s “Admitting Guilt or Heftier Fines? The SEC’s Call”
– Reuters’ “SEC move toward admissions of guilt may have only limited impact”

Meanwhile, SEC Chair White testified about the agency’s budget for fiscal year 2014 before the Senate Appropriations Subcommittee on Tuesday. As noted by Steve Quinlivan in this blog, the budget would finance 25 new Corp Fin positions.

Rulemaking Cost & Benefit Analysis: Appeals Court Rules Against ICI & Chamber of Commerce

A few days ago, the US Court of Appeals for the DC Circuit upheld the District Court’s summary judgment order dismissing challenges from the Investment Company Institute and the Chamber of Commerce to CFTC rules requiring SEC-registered investment companies engaging in the activities of a commodity pool operator to register with the CFTC. Here’s a Morrison & Foerster memo – and here’s an excerpt from this Knowledge Mosaic blog:

In doing so, the Court made two notable points: agencies can change their minds (especially when authorized by Congress to do so), and the Administrative Procedures Act’s cost-benefit requirements cannot be used to challenge an agency’s method for obtaining data on the ground that the agency has not yet obtained the necessary data.

The Court’s opinion principally addressed two of the four challenges presented by the Investment Company Institute and the Chamber: that the CFTC’s rules violated the Administrative Procedures Act by failing to address why it was changing an existing rule that exempted investment companies from the CPO registration requirements, and offering an inadequate evaluation of the rule’s costs and benefits.

House Financial Services Committee Approves Ban on Mandatory Auditor Rotation

Tom White of WilmerHale blogged this news:

The House Financial Services Committee has approved a bill that would prohibit the Public Company Accounting Oversight Board from imposing mandatory auditor rotation. The bill, which passed with bi-partisan support, provides that the PCAOB shall have no authority “to require that audits conducted for a particular issuer in accordance with the standards set forth under this section be conducted by specific auditors, or that such audits be conducted for an issuer by different auditors on a rotating basis.” As with all proposed legislation, it is, at best, uncertain whether this bill will become law. But it does send something of a signal to the PCAOB.

– Broc Romanek