Thursday, December 17, 2020

No. 403: General Electric Enters into a $200 Million Settlement with the Securities and Exchange Commission

In No. 395 (October 26, 2020), I said General Electric Company (GE) had received a Wells notice on September 30, 2020 from the staff of the Securities and Exchange Commission (SEC). The notice related to an SEC investigation of, among other things, GE's inadequate reserves for its legacy long-term care (LTC) insurance business. On December 9, 2020, GE filed an 8-K (significant event) report disclosing that GE and the SEC had entered into a $200 million settlement to end the previously disclosed SEC investigation.

The GE 8-K
In the 8-K, GE said it had reached a settlement in connection with the SEC investigation. GE went on to say (the relevant section of the 8-K is in the complimentary package offered at the end of this post):
Consistent with common SEC practice, GE neither admits nor denies the findings in the administrative order that the SEC issued today. Under the terms of the settlement, GE consented to the entry of an order requiring it to pay a civil penalty of $200 million and to cease and desist from violations of specified provisions of the federal securities laws and rules promulgated thereunder.
The SEC Order
A paragraph near the beginning of the SEC Order Instituting Cease-and-Desist Proceedings reads as follows (the full Order is in the complimentary package offered at the end of this post):
In anticipation of the institution of these proceedings, Respondent [GE] has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, as set forth below.
No Admission of Wrongdoing
The "neither admits nor denies" language is an important part of the GE/SEC settlement. In No. 244 (December 11, 2017), I wrote about an SEC settlement in August 2013 with Philip A. Falcone and companies associated with him. There I quoted at some length from a January 2014 speech by then SEC Chair Mary Jo White. Here is a brief, edited description of what she said:
For many years, the SEC, like virtually every other civil law enforcement agency, typically did not require entities or individuals to admit wrongdoing in order to enter into a settlement. This no admit/no deny settlement protocol makes sense and has served the public interest well. She cited such things as more and quicker settlements and avoidance of litigation risk. So why modify the no admit/no deny protocol? She cited such things as a greater measure of public accountability and the need for public confidence in the strength and credibility of law enforcement. She said that, as a U.S. Attorney, she had required an admission of wrongdoing in a 1994 case, and she brought that mind set when she became SEC Chair in 2013.
General Observations
One knowledgeable reader with whom I spoke about the settlement thought the dollar amount of the settlement was a pittance. However, I am not in a position to express an opinion on that matter.

As for the no admit/no deny protocol, it will be interesting to see what happens when the SEC, the Department of Justice, and other federal law enforcement agencies become part of the Biden administration. I cannot predict what will happen, but I hope the no admit/no deny protocol will receive close attention.

Available Material
I am offering a complimentary 20-page PDF consisting of an excerpt from the GE 8-K (1 page) and the SEC Order (19 pages). Email jmbelth@gmail.com and ask for the December 2020 package about the GE/SEC settlement.

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