In his February 2006 speech to the US Chamber Institute for Legal Reform, SEC Commissioner Atkins veered way off of his topic of litigation reform to deliver a message to corporations: stop treating the Commission like a rubber stamp by prematurely disclosing your settlement offers to, or "settlements in principle" with, the SEC staff!

He stated:

It has become a common occurrence lately that I see public companies disclosing an agreement, or settlement, "in principle" with the SEC. I can't tell you how frustrated this makes me. To understand my frustration, you must understand the context in which these situations arise.

Often in the SEC enforcement process, public companies, or sometimes their regulated subsidiaries such as broker-dealers, decide to pursue a settlement with the Commission. In the settlement process, the settling party deals directly with our enforcement staff, but the staff does not have the authority to bind the Commission to the terms of a settlement. Simply put, the settling party is offering to the enforcement staff to settle the matter based on certain violations of the securities laws, with certain remedies such as bars, penalties, or disgorgement, and in return the enforcement staff is agreeing to recommend to the Commissioners that they approve the settlement as offered.

At this stage nothing is final, and because of that lack of finality I find it hard to believe that the agreement by the staff to recommend settlement to the Commission is, by itself, necessarily an event that must be reported to shareholders. Although we Commissioners have deep respect for the work of enforcement staff, I can assure you that the next step in the process is not a rubber stamp approval by the Commission.

In fact, this Commission has shown that it does not own a rubber stamp! Proposed settlements have been, and will continue to be, disapproved or modified by the Commission when they do not meet the policy objectives of investor protection, as well as other factors. Those of you who follow closely the workings of the SEC or who practice before us know very well what I am talking about.

And yet companies routinely continue to do this, the most recent example being the press release by Twinkie-maker Interstate Bakeries. Interstate announces in its press release that

it has submitted an offer of settlement to the staff of the Division of Enforcement of the U.S. Securities and Exchange Commission (SEC) in connection with a previously disclosed SEC investigation. On January 28, 2005, IBC announced that the SEC had issued a formal order of private investigation concerning matters related to a previously announced investigation by IBC's audit committee into the manner for setting its workers' compensation reserves and other reserves.

The proposed settlement is subject to approval by the Commission. IBC has been informed that the staff of the Division of Enforcement has determined to recommend the settlement to the Commission. However, IBC cannot give assurance that the Commission will approve the proposed settlement.

It is unclear to me why companies continue to do this in the face of the Commission's clear, albeit informal, guidance on this. Anyone have any thoughts on this?