In context

Scottrade pleads guilty and settles: the SEC’s new policy

March 10, 2014
In context

Although neither-admit-nor-deny settlements are to remain the norm, according to the SEC, admission as part of settlements will also become part of the SEC’s policy. Scottrade v SEC is the latest settlement based on this “new” policy, in which Scottrade admitted it had violated civil laws by providing incomplete trading data to the SEC and agreed to pay a USD 2.5 million fine to settle the case.

SEC chair Mary Jo White unveiled the “new” settlement policy last year. The SEC will decide on a case-by-case on when to seek an admission, depending on the seriousness of the fraud. Admissions may, in particular, be appropriate in cases where for instance a large number of investors were harmed or put at risk, where defendants engage in egregious misconduct, or if defendants unlawfully obstruct the SEC’s investigative process.


Other examples of recent settlements in which companies admitted their misconduct are:

  • JPMorgan admitted its misconduct in September 2013 and paid a USD 200 million fine. According to the SEC, JPMorgan’s misconduct was egregious. The bank misstated its financial results and lacked effective internal controls. The required admissions from the bank served to advance the goals of investor protection.
  • Philip Falcone and his hedge fund Harbinger Capital Partners LLC admitted multiple acts of misconduct as part of an USD 18 million settlement with the SEC in August 2013. Falcone engaged in serious misconduct that harmed many investors, he improperly used fund assets, secretly favouring certain customers in redemption requests at the expense of other investors and conducted an improper “short squeeze” in bonds issued by a Canadian manufacturing company.


When comparing the US system with the Dutch system, it seems unlikely that the Netherlands will follow the recent US trend of moving to requiring an admission as part of the settlement terms. For instance, in the accusatory US system, the public prosecutor and the suspect (company) are much more at the same level and able to negotiate on settlement terms. In the US system, the suspect’s position is stronger. In the Dutch system, it would not be compatible if the public prosecutor were to impose strict conditions without sufficiently respecting the rights of the suspect to oppose these and negotiate. In addition, in the Netherlands these types of settlement often take place behind closed doors and are not made public. Therefore, even if admissions were made, such admissions would be of limited help to prejudiced investors in their legal proceedings.

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