Is Too Big to Fail Too Big to Confess?: Scrutinizing the SEC’s “No-Admit” Consent Judgment Proposals

When the Securities and Exchange Commission initiates court action against a public company for violation of federal securities laws, it often proposes a court-enforced settlement between the parties known as a “consent judgment.” Nearly all SEC consent judgment proposals contain a “no-admit” clause, whereby the defendant explicitly refuses to confess to the allegations asserted in the SEC’s complaint. Although “no-admit” consent judgments avoid the costs and uncertainties associated with prolonged litigation, they might not be effective in deterring future misconduct, and they could conceal the full truth about the defendant’s wrongdoing. In the wake of the 2008 financial crisis, courts have increasingly questioned whether the SEC’s “no-admit” consent judgment proposals adequately promote the public interest. Despite the courts’ concerns, however, the SEC—and not the courts—is in the best position to assess whether its consent judgment proposals promote the public interest and to implement suitable changes. Accordingly, to ensure that consent judgment proposals do in fact promote the public interest, the SEC should reevaluate its current settlement practices and make appropriate adjustments.