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."
View the White Paper here.
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