“When Franklin Templeton Investments filed a notice with the Securities and Exchange Commission on Monday that the company had settled a case with Massachusetts regulators, it included now-familiar language that the company ‘did not admit or deny engaging in any wrongdoing’, writes David Armstrong in today’s Wall Street Journal.

“But Massachusetts Secretary of State William Galvin, whose office struck the deal with Franklin Templeton, calls the filing “deceptive” and ‘absurd.’ He says he specifically demanded and received an admission of wrongdoing from the company. The consent order said two Franklin units ‘admit to the division’s statements of fact set out in the offer and consent to the entry of this order,’ but didn’t explicitly say Franklin admitted violating the law.”

“The difference between Mr. Galvin’s interpretation and that of Franklin Templeton underscores a pattern in the mutual-fund industry, which is acting repentant over the trading scandal but generally making no confession. The industry has agreed to pay $1.9 billion in fines and restitution, and to reduce fees charged to investors, to settle allegations of trading irregularities that hurt long-term shareholders, almost always neither admitting nor denying wrongdoing.”

“Mr. Galvin says he extracted the concession from Franklin, which is a unit of Franklin Resources Inc., because he had grown tired of reading countless cases of companies settling with regulators without admitting they did anything improper. ‘That language is one of the root causes of the continuing problems of the securities industry,’ Mr. Galvin said. ‘We have taken a position that in cases where the evidence is clear cut it is important to seek an admission because that is the only way to change this conduct.’ “

“In April, when it reached an agreement to settle improper trading allegations with Mr. Galvin’s office, Marsh & McLennan Cos.’ Putnam Investment Management also admitted to the facts as laid out in a consent order, which didn’t say that Putnam admitted wrongdoing. However, Mr. Galvin’s office said in a news release at the time that that Putnam “admits wrongdoing.” A Putnam spokeswoman declined to comment.”

“Franklin Templeton spokeswoman Lisa Gallegos said the company’s filing with the SEC is accurate. She said the company’s admission to the ‘statements of fact’ in the consent order doesn’t constitute an admission of wrongdoing. She says the company didn’t admit to a separate section of the consent order-called ‘violations of Massachusetts securities laws.’ “

” ‘Yes, we admit to the facts but we do not admit to the legal conclusions,’ she said.”

“There’s good reason why firms don’t admit wrongdoing as part of a settlement with regulators. ‘If a fund company admitted to the state that they engaged in wrongful conduct…they would be stripping themselves of any defense in connection with lawsuits from private plaintiffs,’ says Harvey Wolkoff, an attorney at Ropes & Gray. It could even open the door to legal action by other states, which would argue that their residents were wronged as well, he says.”