If Judge Rackoff's rejection of the SEC's $285 million settlement with Citigroup last week was the SEC's first cut, then Friday's story by New York Times reporter Edward Wyatt is, perhaps, the Commission's 500th cut.  The SEC's practice of allowing firms to settle Agency charges "without admitting or denying the allegations" now is under a very harsh spotlight. On Thursday, C-I reported that Wachovia agreed on 2 separate settlements related to charges it had rigged the bids on offerings of municipal securities:  one with the SEC, the other with a group of federal and state regulators, led by the Justice Department.  [See 12/8 WWW posting, "Wachovia Fined, Ex-BAC Marketing VP ..."] On Friday, Mr. Wyatt expressed disbelief that the respective settlements negotiated by the SEC and the Justice Department - regulators whose Washington headquarters sit just one mile apart  - can be "light-years apart in how they deal with lawbreakers on Wall Street." Diametrically Opposed Settlements. While the 2 settlements by these law enforcement agencies are similar in that they assessed monetary sanctions - a combined $148 million - they otherwise seem diametrically opposed.

In the Justice Department settlement, Wachovia said it “admits, acknowledges and accepts responsibility for” manipulating the bidding process in the sale of derivatives on tax-exempt bonds to institutional investors like cities, hospitals and pension plans over a six-year period ending in 2004.

The SEC settlement for the same actions, based on the same facts, allowed Wachovia to settle the charges “without admitting or denying the allegations.” The SEC has settled 3 previous cases involving municipal bond bid-rigging in the same way over the last year.

Why the SEC would allow a company to avoid admitting conduct that it has already admitted elsewhere is at the center of a continuing debate over how the agency polices Wall Street?

Injunction Against Future Violations. And while Mr. Wyatt is on the subject of settlements, he asks why Wachovia's settlement - like Citigroup’s and dozens of other SEC agreements with Wall Street firms in recent years - also includes an injunction against future violations of the antifraud provisions of federal securities law?

Wachovia had already agreed not to violate the same law 3 times over the past 7 years - the last being in April 2011.

The failure to admit conduct that has already been admitted has some legal experts baffled.  “It just doesn’t compute,” said Cornelius Hurley, director of the Boston U. Center for Finance, Law & Policy and a former counsel to the Fed's board of governors. “I think an explanation is deserved from the SEC as to why there is this apparent discrepancy.” SEC's Response. SEC spokesman John Nester said these settlements should be viewed as a package, not separately.  “This is a joint state and federal resolution that includes an admission and compensates victims.” Enforcement Director Robert Khuzami said in a recent interview that the SEC fashions its settlements using the “neither admit nor deny” language because it believes it often results in the same penalties it thinks it would achieve in a lengthy, expensive court trial.  He added that companies demand the language for fear that an admission of securities fraud could then be used against them in class action or shareholder lawsuits seeking damages. Yet, that could be the case for Wells Fargo, according to 3 former SEC lawyers, who spoke on the condition of anonymity because they now represent clients before the SEC.  In interviews, the lawyers said that the admission in the settlement with the Justice Department could probably be used to support evidence of fraud in private civil lawsuits against Wells Fargo.  Wells Fargo, which said the case involved employees who no longer were at the company, declined to comment on the discrepancies between the two settlements. The 'Nonprosecution Agreement' Difference. Another difference between the two settlements includes a nonprosecution agreement signed by the Justice Department with Wells Fargo, in which the bank admitted that several former employees had committed criminal violations of the Sherman Antitrust Act.  That settlement says simply that Wachovia “entered into unlawful agreements to manipulate the bidding process and rig bids.” The SEC, which has the authority to bring only civil charges, forged an agreement in which Wachovia neither admits nor denies that it violated Section 17(a) of the Securities Act of 1933, which forbids fraud in securities offerings.  The SEC complaint gives 6 pages of detail on “representative fraudulent transactions” - implying it could supply much more. Again, Mr. Khuzami, defends the “neither admit nor deny” settlements in part by saying that because the SEC lays out such detail in its complaints, there can be no doubt what occurred.  “I think that people looking at the entirety of that package, would be hard-pressed to come away with a conclusion other than, ‘They did something wrong here.’ ” Closing the Discussion with Judge Jed Rakoff. This federal judge disagrees, rejecting the SEC’s recent settlement with Citigroup because it “is neither fair, nor reasonable, nor adequate, nor in the public interest,” and because it does not provide the court “with any proven or admitted facts upon which to exercise even a modest degree of independent judgment.” Judge Rakoff will not rule on the adequacy of the Wachovia settlement - the SEC filed this case in federal district court in New Jersey. [C-I Closing Note: The countdown is on - it's just a matter of time before the SEC - and FINRA, for that matter - have to change their ways of "doing business."] For further details, go to:  [NYTimes, 12/8/11]