Both the New York Times and the Financial Times (20 August 2013) report on the revamped SEC civil settlement with Mr Falcone and Harbinger Capital. For both Deferred Prosecution Agreement watchers and the SFO/CPS this makes interesting reading, and one wonders whether the UK authorities will follow suit, bearing in mind that there is a consultation on UK DPAs published recently, and the Sentencing Council for England and Wales is also currently consulting upon fine levels for UK DPAs.
This settlement will also be music to the ears of Manhattan Judge Rakoff, who has been a long-time critic of those SEC settlements in which the defendant does not admit wrongdoing.
There has been a tougher, more draconian regime in place at the SEC since June 2013. The original settlement between Mr Falcone et al resulted in a two year ban from the securities market and no admission of guilt; this was rejected by the majority of the five SEC commissioners, and now the final settlement includes a fine of $18 million, a ban from the securities market for Mr Falcone for five years, and full admissions of guilt.
Mr Falcone and Harbinger faced a number of accusations, the majority of which were market abuse-related, but also included Mr Falcone using Harbinger funds to pay his personal tax bill of $113 million. He will personally have to pay $11.5 million of the total $18 million fine.
So why the change of approach for the SEC? Judge Rakoff wasn't alone when publicly raising criticism of the ‘no admission’ policy. Many expressed their disquiet that these civil settlements were too lenient. Additionally, the SEC feel that in pursuit of greater transparency, it is vital in those ‘egregious’ cases that potential investors, customers and shareholders should be fully aware of the company's wrongdoing.
It is also rumoured that the SEC are pushing for full admissions of guilt from JP MORGAN, when currently negotiating a civil settlement concerning the allegations involving the 'London Whale'. This will be a real test of the SEC's nerve, because despite the criminal charges laid by the DOJ against two of its employees in this regard, the bank will undoubtedly resist making such an admission.
There has been some suggestion amongst US legal commentators that the admissions of guilt could lead the way to a full-blown criminal prosecution, but that has been unheard of to date, is unlikely to find favour with the US Judiciary, and would completely undermine the whole policy of civil settlements when dealing with corporate offending.
(The author was a member of the Sentencing Council for England and Wales until March 2013, and advised on the current consultation relating to corporate crime, DPAs, fraud and money laundering)
