The change will also apply to cases where a company enters an agreement with criminal authorities to defer prosecution or to not prosecute as part of a settlement.

Robert Khuzami, the director of enforcement at the S.E.C., said the agency would continue to use the “neither admit nor deny” settlement process when it alone reaches a deal with a company in a case of civil securities law violations. Those types of cases make up a large majority of its settlements.

The S.E.C. has been sharply criticized, in federal court and on Capitol Hill, for allowing companies to repeatedly settle fraud cases without admitting or denying the charges. Until last week, that policy has been applied even when a company acknowledges the same conduct to another government agency, often the Justice Department.

For example, the S.E.C. and the Justice Department announced on the same day last month that Wachovia bank would pay $148 million to settle charges that the bank reaped millions of dollars in profits by rigging bids in the municipal securities market, one of several such settlements announced last year by the two agencies.

In the Justice Department settlement, Wachovia said it “admits, acknowledges and accepts responsibility for” manipulating the bidding process in the sale of derivatives on tax-exempt bonds to institutional investors like cities, hospitals and pension plans over a six-year period ending in 2004.

But in fashioning a settlement with the S.E.C. based on the same facts, Wachovia agreed to settle the charges “without admitting or denying the allegations.” Wachovia is now part of Wells Fargo.

Under the new policy, a civil settlement will cite the admission of conduct or conviction in the corresponding criminal case, Mr. Khuzami said. But the S.E.C.’s enforcement staff will have discretion whether to use relevant facts from the criminal case in its own court documents for the civil case.

The S.E.C. encountered the conflict between simultaneous admission and nonadmission of facts in three other cases involving bid-rigging by large Wall Street firms last year. S.E.C. officials declined to comment on whether additional cases could result from the Wall Street bid-rigging.

Mr. Khuzami said the policy change had been under consideration since last spring and had been discussed with commissioners “over the last several months.”

The “neither admit nor deny” practice has been in use for years by many government agencies in addition to the S.E.C. But it has been the S.E.C.’s application of it, particularly in cases related to the 2008 financial crisis, that has attracted renewed criticism recently.

In November, a federal judge in New York rejected an S.E.C. settlement with Citigroup over securities fraud charges, saying that the “neither admit nor deny” language deprived the court of the facts necessary to determine if the punishment was adequate because it meant that there were no established facts on which to base a decision.

The Citigroup case would not have been affected by the change, because there was no concurrent criminal charge. The S.E.C. has appealed the judge’s rejection of its settlement with Citigroup.

The S.E.C. has defended the practice of allowing companies to neither admit nor deny charges, saying that by settling with companies, it saves the commission the far greater expense — and potential risk — of fighting them in court. The agency says it is usually able to get as much money from a settlement as it could win in a protracted legal case, with money being returned to investors more quickly.

In drafting a settlement of securities fraud charges, companies frequently seek the “neither admit nor deny” language for fear that their acknowledgment of the conduct could be used against them in shareholder lawsuits seeking damages. But legal experts say that safe harbor does not apply when a company has admitted facts in a criminal case.

Article source: http://www.nytimes.com/2012/01/07/business/sec-to-change-policy-on-companies-admission-of-guilt.html?partner=rss&emc=rss