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General counsel are going to be closely watching how the Securities and Exchange Commission enforces a new policy that would force corporations to admit misconduct in “egregious” cases. It’s a policy that’s likely to greatly impact a company’s litigation strategy, according to attorney Christopher LaVigne.

“It’s a pretty stark change,” LaVigne told CorpCounsel.com Wednesday. He explained that historically, the SEC settled cases by routinely using neither-admit-nor-deny language.

Then the agency started insisting on admissions when there were guilty pleas in parallel criminal cases, he said, and since June it has been requiring admissions of liability in egregious cases—or else the defendant goes to trial.

LaVigne, counsel in Shearman & Sterling’s New York office, is a former member of the Securities and Commodities Fraud Task Force in the U.S. Attorney’s Office in Manhattan. He said only time will tell how often the SEC invokes the policy and in what types of cases.

“It definitely raises an issue that needs to be considered and planned for in litigation strategy,” LaVigne said. “One strategy will be to convince the SEC that this is not an egregious case in which an admission is required.”

He added that it would be a new litigation factor for companies and one that “anybody who finds themselves in the crosshairs of SEC enforcement actions needs to focus on.”

Members of the white-collar defense bar and in-house counsel will be watching especially closely over the next several months, he said, to see how this unfolds in practice.

LaVigne recently co-authored a blog post for Law360 [PDF], predicting that deciding which cases are the most “egregious” will likely prove difficult for the SEC. One category of cases that could be controversial involves those in which a parallel criminal proceeding against a defendant resulted in an acquittal or dismissal.

Admitting misconduct to the SEC after an acquittal could raise serious liability issues and other institutional concerns for a company, according to the article.

The agency is expected to continue to settle most cases without requiring an admission. That’s because, according to the blog post, the former SEC policy served both defendants and the SEC—the company avoids potential collateral consequences in suits brought against it, while the agency conserves its limited resources by avoiding trials.

“Likewise, this policy has helped aggrieved investors get compensated for their losses without extended delay,” the authors add.

A memo to SEC staff enumerated three instances in which the commission would seek an admission of liability, according to a recent New York Times story. They include “(1) misconduct that harmed large numbers of investors, or placed investors or the market at risk of potentially serious harm, (2) egregious intentional misconduct, or (3) when the defendant engaged in unlawful obstruction of the commission’s investigative processes,” according to the Times.

LaVigne’s blog post says the first test of the policy could come very soon, in a case involving Vitesse Semiconductor Corp. In February, a second mistrial was declared in the criminal trial of two company executives, but the SEC’s civil case against them is pending.

“With much uncertainty about the ultimate outcome of the criminal proceeding, and the real possibility of a defense victory, the SEC may soon find itself standing alone with a very big decision to make about how to resolve its active case under the new settlement policy,” the article concludes.

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