The SEC’s Non-Pursuit of Justice

*The SEC’s Non-Pursuit of Justice*
**By Phil Hall**

new-PhilH***At one point in my career, I found myself laboring at a small, shabby company where a hostile department manager decided one day that he did not like the quality of my work. To express his displeasure, he sent me a wildly hostile email that denigrated my work with foul language of an excretory nature.

****Not being one to take insults lightly, I forwarded the email to the company’s president, who was the manager’s superior. I pointed out the inappropriate nature of the email’s content, noting that it fell seriously afoul of corporate conduct policy as per the employees’ handbook. I asked for intervention in this matter and, perhaps foolishly, I had expected that some action be taken against this foul-mouthed manager. But nothing happened. But the company president ignored my complaint, and the department manager later arrogantly laughed at my umbrage by claiming that he was “justified” in using crude verbiage in his interoffice communications.

****I recalled this miserable anecdote upon learning that the U.S. Securities and Exchange Commission (SEC) will begin to require financial institutions to offer an admission of guilt as part of the agency’s civil settlements. Mary Jo White, the SEC chairwoman, told a recent Wall Street Journal CFO Network conference that this policy switch will be used where and when the agency believes it is justified.

****“We are going to, in certain cases, be seeking admissions going forward,” White said. “Public accountability in particular kinds of cases can be quite important, and if you don’t get them, you litigate them.”

********Also, let’s not forget the civil lawsuit brought by Eric Holder’s Department of Justice in February against Standard & Poor’s Rating Services (S&P), in which the Attorney General and his team insisted the rating agency engaged in improper practiced on its ratings of collateralized debt obligations in 2007. Of course, S&P’s ratings back in 2007 were the same as those offered by other rating agencies. The only difference between S&P and its peers was that S&P was the sole rating agency to downgrade the U.S. credit rating in the aftermath of the 2012 debt ceiling crisis – a history-making event that left the Obama administration with a sorry legacy and, it appears, a taste for revenge.

********The SEC’s promise of trying to milk an admission of guilt must not be seen as a new day in federal litigation. White supplemented her unexpected announcement with a coda that the longstanding habit of concluding settlements without an admission of guilt will continue to be a “major, major tool” in how the SEC deals with suspected lawbreakers. If I was a betting man, I would wager that will be the only tool at play as long as White (a former Wall Street attorney) stays at the SEC steering wheel.

****But why should that be a surprise? Whether in a crummy workplace or in a crummy government, the failure of those in power to serve justice with intelligence will send the signal that the enforcement of rules is strictly a casual affair, and that anyone holding their breath in expectation of serious justice brought against blatant wrongdoers will wind up asphyxiating themselves.

****Mercifully, I could escape that aforementioned horrible job, and not a moment too soon – the foul-mouthed manager took me into his salty confidence by telling me that the company’s revenues were “sinking like the [bleeping] Titanic” – and I took that cue by getting into a career lifeboat and sailing to safety before the company began its fatal descent. Alas, escaping from the realm of a federal judiciary process that will not do its job is a lot more challenging, and in this case everyone is going down with the ship of state.