STOCK MARKET WATCH -- Friday, 13 January 2012

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62. When Wall Street Sins, SEC Needs to Extract Confessions: View

http://www.bloomberg.com/news/2012-01-13/when-wall-street-commits-a-sin-the-sec-needs-to-extract-confessions-view.html

The Securities and Exchange Commission last week said it will no longer allow individuals or companies, when settling civil lawsuits, to “neither admit nor deny” wrongdoing if they have been separately convicted in a parallel criminal case. At first glance, it seems the SEC is doing something highly commendable. But there is much less than meets the eye here. The SEC should make further changes to put real meaning behind its attempt at reform, which affects only a small fraction of SEC cases.

The SEC’s enforcement chief, Robert Khuzami, says the change “eliminates language that may be construed as inconsistent with admissions or findings that have already been made in criminal cases.” This makes sense, since criminal cases require a higher standard of proof than civil ones. In short, if you’re guilty of the crime, you’re often guilty of parallel civil violations.

Internal discussions on revising the settlement language have been going on for months, the SEC said. We have to wonder whether the commission didn’t see the contradiction of its policy after Wells Fargo & Co. last month admitted to Justice Department charges of municipal-bond bid rigging by Wachovia, which Wells Fargo acquired in 2008. As in so many other cases, Wells Fargo skirted an admission of wrongdoing in a matching SEC suit.

The bigger question is why the SEC ever adopted such a stance and let it remain in place since the 1970s. One answer might be that the SEC has sometimes forgotten that its mission is to protect investors, not the industry it oversees.