The real breakthrough in the S&P prosecution

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The government's zeal to prosecute Standard & Poor's, and possibly other credit rating companies, has generated lots of discussion rehashing the sins of investment bank leading up to the financial crisis.

A professor from the Wharton School of Business makes an interesting point the real breakthrough in this prosecution: The government is actually demanding that the company plead guilty to its crimes and admit that it did wrong.

This is a rare move. Previously, the SEC's routine was to allow companies to neither admit nor deny guilt when they settle charges. That has galled many, including Judge Jed Rakoff, who famously questioned the legitimacy of the practice when he reviewed the Citigroup settlement and the Bank of America Merrill Lynch settlement. The SEC is currently contesting Judge Rakoff's rejection of its settlement with Citigroup, and the arguments are quite interesting.

In the face of heavy criticism, the SEC has embraced a new policy, one that no longer allows companies to neither admit nor deny guilt. 

From a laymen's point of view, common sense holds that banks wouldn't settle if they weren't willing to admit they had done something wrong. So why not make them own up to it?

The answer has always been that companies are loath to admit crimes in part because they fear the after-effects of such an admission in terms of private law suits. If they were to admit guilt, the suit would land fast and furious. For now anyway, S&P would rather contest the charges than become a test case in the SEC's new policy.

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