Statement of Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency in Settlements
Proposal for a Heightened Enforcement Accountability and Transparency (HEAT) Test to Require More Defendants to Admit to Wrongdoing in Settlements
September 19, 2022
I have deep concerns about continuing the Commodity Futures Trading Commission’s (CFTC) longstanding and routine practice of not seeking admissions of wrongdoing when settling the overwhelming majority of enforcement cases, which has resulted in routine civil settlements in which the defendant “neither admits nor denies” wrongdoing. For this reason, I recently voted to concur in (and not simply to support) settlements with undisputed facts of egregious fraud that victimized retail investors and had other aggravating factors. My concurrences reflect that I support resolution of these cases to the extent that they obtained the same or nearly the same relief the CFTC would expect to obtain in a successful trial (including restitution for victims). Yet, I do not support allowing these defendants to settle without admitting their illegal conduct.
I propose a Heightened Enforcement Accountability and Transparency (HEAT) Test for the CFTC to require more defendants to admit wrongdoing in CFTC enforcement settlements. The HEAT Test is designed to identify those cases calling for greater public accountability and transparency—where the CFTC should send a message about the paramount importance and strength of our enforcement program.
- Requiring defendant admissions in the CFTC’s civil enforcement cases serves the critical public interest goals of enforcement—justice, accountability, and deterrence.
The HEAT test is designed to identify cases in which admissions are necessary to promote the public interest goals of law enforcement—justice, accountability, and deterrence—to the fullest extent. While a successful trial meets all of those public interest goals, it is well-known that federal regulators, including the CFTC and the SEC, settle the overwhelming majority of civil enforcement cases. It is not well-known to the public, but is well-known to many regulated entities and the defense bar, that in the overwhelming majority of these settlements, the government does not require the defendant to admit their conduct or the illegality of that conduct.
Federal agencies initially insisted on the “neither-admit-nor-deny” clauses to ensure that defendants not deny their wrongdoing post-settlement—a requirement that I continue to believe is necessary. These clauses were meant to protect enforcement programs against defendant denials that wrongly suggested to the public that settlements lacked merit. They have morphed into routine elements of settlements that protect defendants from the collateral consequences of admitting their unlawful conduct and fully accepting responsibility.
Requiring defendants to acknowledge responsibility and wrongdoing to the public is an important enforcement tool that promotes critical public interests. Unfortunately, this tool has become dull with disuse. The CFTC, as well as other U.S. financial regulators, continue a routine practice to settle civil enforcement cases without admissions. Indeed, from all appearances, it has become routine for regulators simply to assume that advantageous settlements would be possible only with neither-admit-nor-deny clauses, and to not even request admissions. Defendants know that and use that to argue against acknowledging their wrongdoing in settlement negotiations, further dulling what should be a sharpened tool of justice, accountability, and deterrence.
I have served in federal law enforcement for nearly two decades, working hundreds of civil and criminal investigations. This includes civil and criminal law enforcement experience as the Special Inspector General for the Troubled Assets Relief Program (SIGTARP, within the U.S. Treasury Department), civil law enforcement at the SEC, and now civil law enforcement at the CFTC. That experience confirms that the primary public interest goals of civil and criminal law enforcement are the same—seeking justice, accountability, and deterrence. None of these goals are fully served when federal regulators routinely agree to neither-admit-nor-deny civil settlements.
In the criminal context, federal courts require defendants who are pleading guilty to appear before them and accept responsibility. I have been in many courtrooms during guilty pleas when defendants hedged on their acceptance of responsibility only to have the court question or reject the plea. I have also heard defendants accept full responsibility for their conduct and wrongdoing, and afterwards talked to victims who expressed the feeling of justice when they heard the defendant take responsibility for harming them. Denying victims that justice should not be routine. It is important to remember that financial fraud is often accompanied by human tragedy, and no less tragedy than leads to many criminal proceedings.
Routine acceptance of neither-admit-nor-deny civil settlements undercuts a regulator’s efforts to seek justice for victims. Those harmed by frauds can feel vindicated by our civil enforcement actions, but they are too often denied the full measure of justice they deserve and that can come only from defendants admitting their actions that harmed the victims. Full accountability should mean that defendants admit that they have done something wrong; and accept responsibility for breaking the law. Without full accountability, the deterrent effect for future violations of the law—by the defendant, and others—is significantly reduced.
This is why I am calling on the CFTC to change this routine settlement practice. From time to time, the CFTC should reconsider enforcement policies and practices to ensure that we are maximizing the public interest goals of enforcement and using all the enforcement tools available to us. And we would not be alone in this public interest endeavor. I welcomed the announcement by SEC Director of Enforcement Gurbir Grewal that the SEC would reconsider its longstanding and routine practice relating to neither-admit-nor-deny settlements. See G. Grewal, Remarks at SEC Speaks 2021 (Oct. 13, 2021) (When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law, and so, in an era of diminished trust, we will, in appropriate circumstances, be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest.). In this era of diminished trust, so should the CFTC require acceptance of responsibility.
- With the public looking to the CFTC for market integrity during these critical times in our nation, the CFTC should maximize public accountability, transparency of the defendant’s wrongdoing, and the deterrent impact of its enforcement settlements by requiring more defendants to admit their wrongdoing.
In the aftermath of the 2008 financial crisis, which brought the U.S. economy and countless Americans into distress and highlighted the need for strong enforcement and public accountability, the SEC and CFTC strengthened their enforcement programs by announcing that they would require more defendants to admit wrongdoing. In practice, this started with requiring defendants to admit facts that were admitted in criminal proceedings. The SEC also sought to require admissions in cases with parallel regulatory settlements containing admissions. Later, the SEC announced that it would require admissions where there is “a special need for public accountability and acceptance of responsibility.”
The CFTC is again in an environment that calls out for heightened public accountability, transparency, and maximizing the deterrent impact of its enforcement settlements. Commodity markets (for example oil, natural gas, and wheat) continue to face significant challenges post-pandemic, with supply chain issues, with price volatility in the current economic cycle, and with geopolitical issues surrounding Russia’s invasion of Ukraine. Commodity producers, consumers, and end users are under increasing pressure. At this particular time, the public is looking to the CFTC to have the strongest law enforcement program that we can have—to root out manipulation and other distortions to the price discovery process that undermine the fundamental hedging utility of the derivatives markets, and thereby undermine market integrity. Transparency and public accountability increase public trust in the CFTC and deter future illegality. Defendant admissions aid in that public trust.
The CFTC’s practices with respect to neither-admit-nor-deny settlements must adapt to the environment in which we find ourselves. That is also one in which new technologies, new markets, new business models, and new players use old methods and familiar schemes to defraud others, impair market integrity, and threaten markets and American families. One example of this is the rise of retail investors coming into our markets, excited to buy cryptocurrencies or other retail-targeted products. Unfortunately, as our cases bear out, that has been accompanied by a rise in those seeking to exploit that excitement for personal gain, and a rise in victims.
This is not just a question of keeping up with emerging markets or market stress events. The CFTC is also in an environment in which some financial institutions—many regulated—have demonstrated over the course of years that they are unwilling or unable to change the culture of their firms and operate within the confines of the law. This remains the case for some institutions even after the CFTC and other regulators (including SIGTARP) have imposed substantial penalties and other remedies in multiple successive enforcement actions.
The CFTC should not await a crisis to reconsider our enforcement policies and practices. We have an opportunity to reassess enforcement practices and strengthen our enforcement program. I urge us to seize it.
- The Heightened Enforcement Accountability and Transparency (HEAT) Test would guide the CFTC and ensure that more defendants admit to their wrongdoing.
I propose a HEAT Test to assist the CFTC in assessing whether specific cases demand the heightened justice for victims, heightened accountability and transparency through public acceptance of responsibility, and heightened deterrence that would accompany defendant admissions. This would include cases with one or more of the following factors:
- Egregious conduct;
- The presence of a criminal scheme;
- Significant harm or risks of harm to investors and/or market participants;
- Significant harm or risks of harm to market integrity;
- A recidivist defendant;
- Obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or
- The need to send a pronounced message about particular conduct or practices.
The HEAT Test factors are intentionally broad to result in a shift in the CFTC’s current settlement practices.
Going forward, the CFTC should review cases with potential settlements for these factors and provide transparency to defendants about our expectations in negotiations. Over time, the CFTC’s applications of the HEAT test will provide even more transparency as it develops a body of precedent.
I am not saying that every settlement should require admissions. There may be circumstances that warrant acceptance of neither-admit-nor-deny settlements, just as accepting a guilty plea may be appropriate in lieu of taking a criminal case to trial. The CFTC must retain the broad arsenal of enforcement tools necessary to achieve the fullest extent of justice, accountability, and deterrence.
I am challenging the routine acceptance of neither-admit-nor-deny settlements. I am challenging what seems to have transformed from an enforcement tool to be used in limited circumstances to an expectation by defendants and their lawyers.
- Call to Action
It has become routine for defendants to demand neither-admit-nor-deny settlements, even in cases where there is a greater public interest for accountability and transparency as to the defendant’s wrongdoing. Unfortunately, it also seems to have become routine for the CFTC to accommodate those demands.
That must change.
The CFTC should be willing to require more settling defendants to admit their wrongdoing and take more cases to trial when defendants are not willing to do so. My proposed HEAT test is designed to identify those cases where the CFTC should require defendant admissions. For those who say defendants will never settle cases if they have to admit what they did was wrong, I respond by saying nothing ventured, nothing gained. I have not spent my career in federal law enforcement with the goal of settling cases but instead to serve the public interest goals of justice, accountability, and deterrence to the fullest extent possible.
 The CFTC is not alone in this practice. In past years, the Securities and Exchange Commission (SEC) has routinely allowed companies and individuals to settle enforcement investigations without admissions as well. See, e.g., V. Winship, J. Robbennolt, An Empirical Study of Admissions in SEC Settlements, 60 Ariz. L. Rev. 1 (2018); See also D. Rosenfeld, Admissions in SEC Enforcement Cases: The Revolution That Wasn’t, 103 Iowa L. Rev. 113 (2017).
 See D. Rosenfeld, Admissions in SEC Enforcement Cases: The Revolution That Wasn’t, 103 Iowa L. Rev. 113 (2017).
 Director Grewal joins a number of other voices expressing concerns about the lack of accountability in routine neither-admit-nor-deny settlement practices. See, e.g., C. Modesti, Director of Enforcement, Modification to Settlement Recommendations for Disciplinary Proceedings, Public Company Accounting Oversight Board (Oct. 2, 2015); See also Statement of Commissioners R. Chopra, R. Kelly Slaughter, Federal Trade Commission, Regarding Final Approval of the Sunday Riley Settlement, FTC (Nov. 6, 2020) (where there was no admission of wrongdoing). I join those voices.
 See R. Khuzami, SEC Director of Enforcement, Public Statement by SEC Staff: Recent Policy Change (Jan. 7, 2012).
 See M. White, Chair of the SEC, Speech at the Council of Institutional Investors Fall Conference: Deploying the Full Enforcement Arsenal (Sept. 26, 2013) (But there also is group of cases where a public airing of unambiguous facts—whether through admissions or a trial—serve such an important public interest that we will demand admissions, and if the defendant is not prepared to admit the conduct, litigate the case at trial. I analogize it to a guilty plea in a criminal case—There is a certain amount of accountability that comes from a defendant admitting to unambiguous, uncontested facts. It is in many respects a cathartic moment. And there can be no denying the facts under those circumstances.). However, there are criticisms that the SEC did not require admissions in a sufficient number of cases.
 The CFTC’s Division of Enforcement also should consider publishing its admissions rate in the annual enforcement report.
 The Commission should weigh the speedy resolution of a case that allows it to obtain relief similar to what a court would order in a successful trial, allowing for quicker distribution of funds to victims while optimizing agency resources, which might be present in cases that hold significant litigation risk on the merits or pose other significant challenges (e.g., obtaining victim or witness testimony). While some defendants may be more willing to settle if they can be reasonably assured that the settlement does not open other avenues for liability, that does not mean that the defendant’s willingness to settle or the presence of any collateral consequences should drive our decisions in the face of compelling factors set forth in the HEAT test. Collateral consequences often flow from illegal conduct.