Admissions of Wrongdoing: The Final Frontier

Admissions of Wrongdoing: The Final Frontier

Admissions of wrongdoing are the final frontier in civil fraud settlements—that elusive element that purportedly makes the payment of even large settlement amounts more than "just a cost of doing business" for the defendant companies. Federal law enforcement agencies have repeatedly emphasized the importance of admissions as an enforcement tool in civil settlements. Most recently, Mary Jo White, chairman of the U.S. Securities and Exchange Commission, indicated that the SEC would seek more admissions of wrongdoing from defendants as a condition of settling civil cases. Stuart Delery, assistant attorney general, has also emphasized the importance of admissions of wrongdoing in fraud cases, including in civil cases. According to numerous news articles, admissions of wrongdoing are a major stumbling block in both the $13 billion mortgage fraud settlement currently being negotiated between J.P. Morgan Chase and the federal government, and in settlement discussions that allegedly have taken place between Standard and Poor's and the federal government in its case against the ratings agency under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

Like many new frontiers, however, this one also appears to be somewhat in the distance. Although there have been a number of large, highly publicized settlements in which defendants have acknowledged wrongdoing, particularly in the area of pharmaceutical fraud, few of these cases have been purely civil. The settlements in the large pharmaceutical fraud cases, which have included both a criminal plea and a civil settlement, have encompassed agreed statements of fact on the criminal side that constitute admissions of wrongdoing. The corresponding civil settlements still generally include language in which the defendants purport to deny the government's allegations except to the extent admitted as part of the criminal plea agreement.

The fact is that admissions of wrongdoing in settlements of purely civil fraud cases are still a rarity. Since 2011, when admissions began appearing in a smattering of civil settlements, defendants have admitted wrongdoing in only a small fraction of purely civil health care fraud and mortgage fraud settlements, and a minute fraction of purely civil settlements in other areas such as contracting fraud, grant fraud, and procurement fraud, among others. (Attached is a document showing the language of the admissions of fact in a number of purely civil cases settled with the Department of Justice from 2011 through the present.)

As defendants in such cases have repeatedly expressed, admissions of wrongdoing—even if they are not admissions of liability per se—have the potential to snowball into liability toward plaintiffs in private actions based on similar allegations. Although to date there have been few cases in which private plaintiffs have used admissions of wrongdoing in government settlements against defendants in private actions, in at least one recent well-publicized instance, a government regulator has used admissions of wrongdoing by an individual in an SEC case to exclude the individual from certain regulated insurance activities. Of course, defendants have also expressed concerns that admissions of wrongdoing can lead to significant reputational harm well beyond merely signing a settlement agreement.

Thus, it is still the case that in the vast majority of settlements, defendants routinely deny liability in the time-honored way, in language stating that "This agreement is neither an admission of any wrongdoing or liability by [defendant] nor a concession by the United States that its claims are not well founded." In short, as has been the case throughout history, the parties agree to disagree, but resolve to settle "[t]o avoid the delay, uncertainty, inconvenience, and expense of protracted litigation."

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Heidi A. Wendel
New York

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