SEC Settlement with Diamondback Capital Evidences SEC’s New Practice of Prohibiting Defendants from Settling Cases Without Admitting or Denying Facts Admitted in Parallel Criminal Matters
Hedge Fund Law Report
On January 23, 2012, Diamondback Capital Management, LLC (Diamondback) entered into agreements with the U.S. Attorney’s Office for the Southern District of New York (U.S. Attorney’s Office) and the SEC to, respectively, avoid criminal prosecution and settle parallel civil charges. For a thorough discussion of the civil and criminal charges and resolutions to date, see “SEC Files Civil Insider Trading Complaint Against Diamondback Capital Management, Level Global Investors and Seven Individuals Based on Trading in Dell and Nvidia; Diamondback Strikes Non-Prosecution Deal with U.S. Department of Justice and Settles with the SEC for $9 Million,” above, in this issue of the Hedge Fund Law Report. The settlement with the SEC is important because it represents the first settlement under the SEC’s new policy adopted on January 6, 2012 whereby it no longer permits defendants to settle civil charges in connection with a civil injunctive complaint or an administrative order without admitting or denying allegations of wrongdoing where: (1) a defendant has been the subject of a parallel criminal conviction or; (2) a defendant has signed a non-prosecution agreement or deferred prosecution agreement in a parallel criminal prosecution in which it admits or acknowledges wrongdoing. This article describes the new SEC policy change as well as the implications for hedge fund managers facing parallel criminal and civil actions.