I saw something buried on the business pages yesterday that gave me a sliver of hope. Some companies settling cases with the SEC may no longer use that weasel phrase “neither admit nor deny” any wrongdoing in their settlements. “Hurrah,” I thought, “perhaps an era of true enforcement instead of silly legal language has begun.” My heart soared. "Perhaps change is really finally happening," I thought.
Would my heart be broken again? Oh, you know it would be, you read the title of the diary, but follow me over the fold for details.
So despite my first flush of hope, upon further research I discovered that this is a change in language only, and a limited one at that. The new rule applies only in SEC cases where other agencies, such as the Justice Department file related criminal cases, and the company or person admits to guilt in resolving those criminal charges. There was a case with Wachovia apparently, where they admitted guilt to justice used the above slippery language in the SEC settlement. So basically, according to the New York Times linked below, Wachovia said to the Justice Department it “admits, acknowledges and accepts responsibility for” manipulating bidding processes, and tells the other federal agency, “We’re not saying we did, we’re not saying we didn’t, but we’ll pay this fine.” And the fine, of course is paid from the corporate treasury, shareholder money, not by the executives and wrong-doers themselves. (One idea I’d love to see is fines taken out of future bonus pools. Now that would be powerful.)
http://www.nytimes.com/...
Judge Rakoff, may he reign forever, highlighted the absurd phrase when he rejected the Citigroup settlement. He noted that the language made it impossible to know if penalties are appropriate.
The problem he helped shine light on wasn’t simply with the turn of language, the problem was with what it illustrated: the profound lack of accountability for those that have done wrong.
Getting rid of the phrase does not address the very real and legitimate anger felt by shareholders and citizens. I’m not an attorney, but I believe the correct legal phrase may be “lipstick on a pig.”