Government investigations are risky and expensive and, in the case of companies, commonly lead to settlements. Companies often resolve investigations even if they believe the government is wrong on the law or the facts, or both, and when (and sometimes because) the law on important issues is unsettled.
In our most recent article, we discussed how judicial scrutiny is becoming a growing challenge in securing approval of settlements of government enforcement proceedings. In this article, we look not at how to get a settlement approved but, rather, whether a private party may undo a settlement with the government because of a subsequent development in the law or related legal proceedings. The short answer is—possibly, but with great difficulty, as we explain below.
In the 2007 case of In the Matter of Tudor Investment Corp., a company had agreed to a cease-and-desist order based on certain short-selling activities which were enjoined at the time. However, ten years later, those same activities were determined to be lawful and the SEC repealed the rule underlying the order. However, because the cease-and-desist order was still active, Tudor was barred from engaging in what was now lawful short-selling activity. Although it was nearly a decade since the original order had been entered, Tudor argued that it should be vacated to “eliminate any ambiguity and to clarify that Tudor may participate in the same lawful short-selling activities as other market participants.” The SEC agreed and vacated the order, once again considering it “appropriate” given “all the circumstances.”
In the criminal law context, the Federal Rules of Criminal Procedure similarly allow defendants to withdraw a guilty plea for a “fair and just reason,” such as, for example, if the conduct they were convicted of is later determined to not be a crime. Such cases are unusual, and courts hesitate to permit withdrawal of guilty pleas absent unusual circumstances. Nevertheless, defendants have been permitted to withdraw a guilty plea when the U.S. Supreme Court or the highest state court narrows the scope of a criminal statute or renders it unconstitutional.