By Ana Viswanatha
U.S. lawmakers showed little support on Thursday for tinkering with a regulatory policy of settling cases without requiring defendants to admit to misconduct.
U.S. District Judge Jed Rakoff last year rejected a proposed settlement between the Securities and Exchange Commission and Citigroup Inc, and said he could not assess whether it was fair because it did not require the bank to admit or deny liability.
Since such neither-admit-nor-deny language is common for most federal agencies, Rakoff's order set off a major debate in the securities world over whether enforcers should more often require defendants to admit to wrongdoing.
At a congressional hearing on Thursday officials from four agencies -- the SEC, the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency -- said requiring admissions of misconduct would hurt regulators' ability to bring cases and would soak up limited resources.
"If you look at the entire package of a settlement," Robert Khuzami, director of enforcement for the SEC, said ticking off a list that included a "substantial" penalty, a detailed complaint, business reforms and individuals charges, "all told it really has a powerful deterrent message."
Republican lawmakers on the House Financial Services committee agreed.
"A policy that has judges micro-managing federal agencies in their exercise of enforcement authority and requires the government to engage in lengthy and expensive trials in every instance would not serve the best interests of taxpayers or investors," Spencer Bachus, who chairs the committee, said in opening remarks.
Some Democrats questioned whether such a policy should be used so often.
"I know the SEC has a strong interest in settling cases, but the commission also has a broader responsibility to enforce the rule of law. Settlements should never be viewed as just another cost of doing business," said Maxine Waters, a Democrat from California.
But most committee members questioned the benefit of forcing regulators to require admissions of guilt.
An appeals court has indicated it will likely reverse Rakoff's ruling, but the opinion did prompt the SEC to tweak its policy to require admissions when defendants have already done so in parallel criminal proceedings.