Dell CEO Michael Dell, right, leaves federal court in Washington on Wednesday, Oct. 13, 2010. Evan Vucci/Associated Press
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Companies and executives who settled civil lawsuits brought by the Securities and Exchange Commission in 2010 sometimes paid millions of dollars in fines, but in one key respect they can still hold their heads high.

They didn’t have to admit to doing anything wrong.

The Center for Public Integrity reviewed more than 100 of the SEC’s 694 settlement agreements from 2010, and in every instance defendants ended the lawsuit without admitting or denying charges.

Earlier this week, U.S. District Judge Jed Rakoff in New York slammed the SEC for not being more muscular with defendants, in an opinion involving a settlement with a semiconductor company and its executives.

“The defendant is free to proclaim that he has never remotely admitted the terrible wrongs alleged by the SEC; but, by gosh, he had better be careful not to deny them either,” the judge wrote. “Only one thing is left certain: the public will never know whether the S.E.C.’s charges are true, at least not in a way that they can take as established by these proceedings.”

Defense attorneys say that this type of boilerplate language is necessary for clients who might face lawsuits from other parties. Admitting guilt in one forum would hurt a client’s chances in fighting off a class action lawsuit filed by investors, for example.

It is also nothing new: the SEC has routinely included a “without admitting or denying” clause in its civil consent agreements at the request of defendants since at least the 1970s. And other federal agencies, including the Federal Deposit Insurance Corp., do so as well.

David Martin, a former SEC attorney who now practices at Covington & Burling in Washington, said that such language simply states a fact and in his experience is not controversial. “We don’t have to negotiate for this,” he told the Center.

Justice Department avoids phrase

Rakoff is emerging as the SEC’s chief antagonist.

Last year the judge “reluctantly” approved a $150 million agency settlement with Bank of America over its Merrill Lynch acquisition, after having rejected an earlier, smaller deal. In this most recent critique of the agency’s approach to resolving lawsuits through the settlement process, he said that allowing defendants to walk away without admitting guilt is a “palpable” disservice to the public interest.

“Here an agency of the United States is saying, in effect, ‘Although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it.’”

Rakoff also noted that the Department of Justice rarely allows defendants to enter pleas of nolo contendere, by which a defendant accepts conviction on criminal charges without admitting or denying the allegations.

But at the SEC it is standard practice.

Among those that were allowed to make a deal with the SEC in recent months without admitting any wrongdoing:

  • Michael Dell, founder of the giant computer manufacturer, agreed to pay $4 million to settle accounting fraud charges;
  • Steven Rattner, the Obama administration’s one-time auto czar, agreed to pay $6.2 million to settle pay-for-play charges involving the New York state pension fund;
  • Paul George Chironis, a broker-dealer at a now-defunct firm, paid $350,000 to settle charges that he defrauded a group of elderly Sisters of Charity nuns in the Bronx.

John Savarese, an attorney for Dell, told the Center that the SEC inserts the “without admitting or denying” language in all consent decrees, and that its inclusion was not a topic of discussion during Dell’s settlement negotiations.

David Schrader, an attorney for Chironis, declined to comment specifically on the case, but said he has been told on several occasions by the SEC that the language is “non-negotiable.”

A lawyer for Rattner did not respond to Center requests for comment. Neither did a spokesman for the SEC.

Corporate defendants who settle also generally do so without admitting guilt. Goldman Sachs, for example, paid the SEC a record $550 million after the investment bank was charged with lying to investors about a subprime security. The bank neither admitted nor denied the charges.

Rakoff approves settlement anyway

The judge’s latest rebuke came in an opinion approving an SEC settlement.

Vitesse Semiconductor Corp. agreed in December to pay $3 million to settle an SEC stock options backdating case, and two former officials at the company agreed to repay their gains. In explaining why he approved this deal after filling most of 12 pages with reasons why he found the boilerplate language so distasteful, Rakoff noted that the executives had admitted to the charges in a criminal proceeding, and that the company had contributed an additional $2.4 million to settle a California class action proceeding.

No reasonable observer of these events, he wrote, could doubt that the individuals and Vitesse had effectively admitted to the allegations.

A lawyer for Vitesse did not respond to a Center request for comment.

In Rakoff’s view, the boilerplate SEC language matters less with a defendant who has admitted to criminal charges in another forum. But that also leads to some of the most startling incongruencies.

Bernard Madoff, the imprisoned king of the Ponzi scheme, has admitted his guilt in defrauding investors of up to $65 billion in every possible forum, from criminal court to jailhouse interviews. But with the SEC he has maintained a perfect record of deniability.

For nearly a decade, Madoff told SEC investigators that market savvy, not fraud, was behind the amazing returns he was recording for investors.

In 2009 — a month before Madoff told a packed federal courtroom during his criminal trial that he was “deeply ashamed and sorry” for ripping off investors — he signed a partial civil settlement with the SEC.

Even then, he didn’t come clean.

“Madoff consented to the partial judgment without admitting or denying the allegations of the SEC’s complaint,” the agency said in a news release announcing the deal.

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