Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent delivery of the 5th Annual Judge Thomas A. Flannery Lecture, available here . The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is a great honor to have been asked to give the Fifth Annual Judge Thomas A. Flannery Lecture. And it is especially meaningful to be joined tonight by Tom Flannery’s daughter Irene, son Tom, and so many friends, colleagues, and former law clerks who knew and served with him.

I unfortunately did not have the privilege of knowing and working with Judge Flannery. But one of the great benefits of being asked to speak tonight is that it gave me the opportunity to come to know him a little—through learning about his many impressive career accomplishments and through reading his own words and those of others about him. I wish I had known him. He was indeed a remarkable man, lawyer, and judge.

As all here know, Judge Flannery was a highly-respected Assistant United States Attorney, United States Attorney, trial lawyer, and jurist on this court for over 35 years. In fact, he spent most of his life within a few miles of this courtroom.

As part of the Historical Society’s Oral History Project for this Circuit, Judge Flannery gave an interview in 1992. It is a fascinating account of his professional life and the life of this court. Judge Flannery said that his view of the justice system was shaped in great part by watching police court trials here in Washington as a law student.

He also said something else that particularly resonated with me and I am sure with all of you who have served in a United States Attorney’s Office. He said, “I always missed the U.S. Attorney’s office. I missed the excitement … and the action down at the courthouse.” And it is no wonder he felt that way.

By the time he had completed his tenure as an Assistant U.S. Attorney, Tom Flannery had tried over 300 cases. That is an amazing feat and a rare opportunity not available to many lawyers, especially today when the number of both civil and criminal trials has dwindled.

I should confess that I was always envious that the D.C. U.S. Attorney’s Office, given its jurisdiction over local as well as federal crimes, provides such a tremendous opportunity for trying so many cases in both Superior Court and District Court. But 300 trials in 12 years is still a remarkable number even by the standards of that office.

Why Trials Are Important

While not having nearly the trial experience of Judge Flannery, I too found trying cases to be among the most exciting and dramatic parts of my career. There is really no comparable professional moment to standing in a courtroom in a federal court, before a jury, and uttering the words, “I represent the United States.”

It is pretty heady stuff, but mostly it is an awesome responsibility, which demands great humility and focus.

I have now been involved in many trials, first as a trial lawyer and then as a United States Attorney supervising trials. And it is hard to compare other experiences with closely overseeing the trials of dozens of international terrorists while I served as the United States Attorney. Those cases, which involved the Al-Qaeda terrorist organization and named Osama bin Laden as a defendant, were very high stakes and high pressure.

Today, I am again in the enviable position as Chair of the SEC to be working closely with the incredibly skilled lawyers who play a key role in the administration of justice. They investigate securities violations and handle the cases when they go to trial. Pursuing white collar offenses both civilly and criminally is extremely important to our system of justice and a priority championed by Judge Flannery when he was the U.S. Attorney here.

Following a change I made in June to the SEC’s no admit/no deny settlement protocol to require admissions in certain cases, some have predicted that more of our cases will go to trial. And some have asked whether the agency’s trial lawyers are ready to go up against the best of the white collar defense bar. It will probably come as no surprise to you, but my answer is a resounding yes.

So as I thought about what to speak to you about tonight, I had trials and in particular SEC trials on my mind. Learning about Judge Flannery and his trial experience both as a lawyer and as a judge “sealed the deal” on my choice of topic. In my remarks tonight, I’ll make a few observations about the importance of trials and their unique place in our system of justice, and talk a bit about the role they play at the SEC.

The personal and professional satisfaction that any of us gets from a trial, of course, pales in comparison to the greater purpose that trials serve. Simply put, they put our system of justice—the best in the world—on display for all to see. In any given courthouse in America, anyone can walk into a courtroom and watch the strength of our trial system. The public airing of facts, literally in open court, creates accountability for both defendants and the government. How we resolve disputes and how we decide the guilt or innocence of an accused are the true measure of our democracy. Thomas Jefferson once said that he considered “trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.”

Perhaps that is why trials have always captured our imagination.

Beyond the courtroom dramas depicted in our books, movies, and television, our country’s history is replete with real trials that maintain special meaning for us because they represent the passage of judgment by the community on very important matters. Just think back over the years, and the impact of trials on our society becomes obvious: the Rosenbergs, the civil rights trials of the 1960s, the Pentagon Papers, the terrorism trials of the 1990s, the Enron trial. There are many to choose from.

Earl Silbert, also a legendary U.S. Attorney for this District and your Flannery lecturer two years ago, has rightly called trials the “crown jewel” of our system of justice. But what is it about trials that make them so important?

We need to step back from our idealized visions of Atticus Finch or Clarence Darrow thundering away on cross-examination and instead try to distill what, in its essence, happens at trials that gives them such a lofty and hallowed place in our justice system. While I am sure there are many reasons we could each identify, I’d like to focus on just two of the important roles that trials play in our administration of justice: how they foster the development of the law, and perhaps even more importantly how they create public accountability for both defendants and the government through the public airing of charges and evidence.

What Is Lost With the Decline of Trials

I suppose I should start with some unwelcome reality. For all that trials mean to our system of justice, there is no denying that trials have slowly but continuously declined over time. They have indeed become a rare species.

Seventy years ago, 20 percent of all federal civil cases went to trial. By 2009, that percentage had dropped to less than 2 percent and the most recent data suggests this number has remained steady. In terms of actual numbers, we had about 12,000 federal trials in 1985. Twenty-five years later, the number had decreased to just over 3,000. And this drop occurred during a period when the number of civil filings overall was increasing dramatically.

On the federal criminal side, we see a similar pattern. In 1962, 15 percent of the cases found their way into the courtroom. As of 2009, the number was less than 5 percent. And here again, that percentage has remained steady if not decreased somewhat in the last four years.

There are many theories proffered for these declines. Earl Silbert rightly pointed in his Flannery lecture to the federal sentencing guidelines as a major cause. In the face of potentially “draconian” prison terms, many defendants with “triable” offenses choose to plead guilty where the sentence can be known or at least predictable. On the civil side, the push for ADR (arbitrations, mediations, and other alternative dispute resolution mechanisms) including local civil rules that require parties to file ADR statements have had a significant impact.

To be sure, there are obviously benefits of efficiency and resource preservation with the decline in trials and the increase of settlements, guilty pleas, and summary dispositions of cases by motion. But we should always reflect on what we also lose when trials become the exception.

Trials Foster the Development of the Law

Judge Patricia Wald, a beyond legendary jurist of your Circuit Court, has for example cautioned us against the “creeping preeminence” of summary judgment and the case law relying too heavily on pre-trial litigation: “in which law is mostly made on the basis of undisputed facts ‘pleaded,’ ‘stipulated,’ or ‘inferred’ rather than on fuller trial records that may more accurately represent the complexity and ambiguity of life.”

She asks, “Will our jurisprudence craft rules and principles and hand them down fully formed from the netherworld of law school hypotheticals, instead of forging them in the heat of pitched battle and hammering them into shape on the anvil of trials, witnesses, cross-examinations, and live evidence evaluated by ordinary lay persons?”

Her observations as always are “spot on” and capture well the importance of trials to the development of the law. Trials allow for more thoughtful and nuanced interpretations of the law in a way that settlements and summary judgments cannot. And we can all point to cases where trials led to significant legal rulings of greater importance than the facts of the particular case, but rulings nevertheless enhanced by the full trial record of the particular case.

U.S. v. O’Hagan

One example is U.S. v. O’Hagan, which established the “misappropriation” theory of insider trading. In that case, O’Hagan, a partner at a prominent Midwest law firm, learned that his client was trying to acquire another company. He then began trading in securities of the acquisition target and profited greatly when the deal was announced.

The SEC conducted a parallel investigation along with the Department of Justice, and O’Hagan was charged civilly by the SEC and indicted by the DOJ for securities fraud. After his criminal trial, O’Hagan was convicted by a jury on all 57 counts in the indictment and sentenced to 3½ years in prison.

The Supreme Court upheld the conviction and extended securities fraud liability—known as Section 10(b)—to cases where the wrongdoer misappropriates confidential information in violation of a fiduciary duty even if the wrongdoer owes no such duty to the company in whose stock he traded. This misappropriation theory forms the basis for many of the insider trading cases that we bring today. And it is a theory supported by the law established on a fully developed trial record. That has become a luxury that is rare in our current “trial-light” system, and in my view the law often suffers.

Public Accountability Through Trials

The reduction in the number of trials also carries with it other unfortunate consequences. As Professor Robert Burns has said, “The death of trials would… remove a source of disciplined information about matters of public significance. … It would mean the end of an irreplaceable public forum and would mean that more of the legal order would proceed behind closed doors. And it would deprive us, as American citizens, of an important source of knowledge about ourselves and key issues of public concern.” I agree.

Like many of you here tonight, I appreciate the near-sacred nature of the courtroom. For it is in places like this—across the country in little towns and big cities—where prosecutors, SEC lawyers, and other litigants are required to meet their burden of proof, and where there is up-close-and-personal accountability for whatever the trial is about.

It is a place where victims and the witnesses have the chance to tell their stories and where the public can hear the facts set forth in open court. And it is a place for public closure on hotly disputed facts and legal issues.

For many of us, the trial is a deeply meaningful process that involves intense preparation, opening and closing statements filled with strong advocacy, and direct testimony and cross examination designed to prove or disprove a case. A trial creates an indelible record of the facts of the case.

Witness after witness is called to testify and provide their version of events, and then are subjected to cross-examination. Sometimes, the witnesses are participants in the wrongdoing, recounting their involvement and the progression of the scheme. Other times, experts are called to provide testimony on the events to help explicate the facts to lay jurors. But by the end of the trial, the full scope of the misconduct is laid before the fact-finder to decide guilt or innocence, liability or no liability.

And each trial culminates in that moment where we await the verdict. It is a gripping yet humbling and often emotional experience.

Those were certainly the feelings I had at my first trial (which, as it happened, was a criminal securities fraud trial). And they were feelings I had at every trial thereafter. I always found myself awed by that moment when the jury passed judgment on a defendant. For it is at that moment when the verdict is read that we determine whether the defendant is to be called to account, or whether we or rather the government has failed to meet its burden.

Once the jury’s judgment has been made, there are often very significant consequences that flow immediately. I can still hear in a courtroom in Foley Square in downtown Manhattan the sound of the handcuffs being clicked closed at the table behind me on the wrists of the defendant after being convicted of a narcotics offense and ordered remanded to custody. The defendant was the wife of a major drug dealer and the mother of their 10-year-old son. The year was 1978. It was my second trial as a prosecutor. That experience powerfully drove home to me the awesome power of the prosecution and the need to exercise that power very carefully.

The scarcity of criminal trials means that the public does not often enough have this kind of public airing and adjudication that trials uniquely provide.

There is, however, at least a fair measure of accountability when defendants plead guilty.

Achieving Accountability Through Admissions

Courts are not permitted to accept a guilty plea without the defendant first acknowledging his understanding of his rights and the charges against him. Assuming satisfactory responses are given, the defendant must then admit to the unlawful conduct in his or her own words.

Anyone who has witnessed a guilty plea understands its significance. It creates a public record of the conduct at issue and demonstrates unequivocally the defendant’s acceptance of responsibility for his or her acts. Not a trial, but an open forum for public accountability.

By contrast, a private or regulatory settlement under the law is not required to include an admission of wrongdoing. As a result, public accountability through settlement is sometimes more elusive even though at least SEC settlements also involve the filing of detailed civil complaints or detailed findings of fact in an administrative case. But is that enough accountability in every case?

As a U.S. Attorney in 1994, I entered into the first-ever deferred prosecution agreement with a company. It involved the payment of a large sum of money ($330 million) into a fund to compensate injured investors and the company’s agreement to extensive compliance and governance enhancements. Back then, there was no requirement in law or policy that an admission be obtained in a deferred prosecution agreement—no protocol or guidance on point. But given the particular facts of the case, I decided it was important even in the absence of a guilty plea that the company admit to certain facts that rendered it guilty. And so I structured the first corporate deferred prosecution agreement to require a public acknowledgement of the unlawful conduct. I believed that was necessary to give the resolution sufficient teeth and ensure greater public accountability. Since then, I believed nearly all deferred prosecution agreements have had such admissions.

And so it was with that backdrop when I arrived at the SEC earlier this year that I decided to review our no admit/no deny settlement practices. After consulting with the Enforcement Division directors and my fellow Commissioners, I decided to alter the SEC’s settlement policy.

Previously, as many of you know, the SEC like most other federal agencies and regulators with civil enforcement powers settled virtually all of its cases on a no-admit/no deny basis. A party would disgorge ill-gotten gains, pay a hefty penalty, and agree to an injunction against future misconduct, but neither admit nor deny the wrongdoing asserted by the SEC.

As I said earlier this fall, in most cases that protocol makes very good sense. The SEC generally settles cases only when we can obtain relief within the range of what we could reasonably expect to achieve after winning at trial. And by settling, the agency is able to eliminate all litigation risk, resolve the case, return money to victims more quickly, and preserve our enforcement resources for other investigations.

It is indeed a very powerful enforcement tool that we will continue to use in most cases. But I altered the policy because I believe that in certain cases, more may be required for a resolution to achieve public accountability and to be, and viewed to be, a sufficient punishment to send a strong message of deterrence. Not a trial, but some extra measure of public accountability.

The Trial Team

Of course, admissions in securities cases can only be secured if the SEC or any government agency can credibly say that it will proceed to trial and prevail if the required admissions are not agreed to by the defendant. A perfect trial record is not required to achieve that credibility. Indeed, if the government won every case, it could mean that our system is flawed or that the government is shying away from the hard cases.

At the time we changed the settlement policy, we recognized that despite the overall trend of declining trials, our new approach could well lead to more trials by parties refusing to admit their wrongdoing. For the reasons we have been discussing, I don’t think that is a bad thing and we welcome the possibility. More trials should mean greater public accountability and more instances of a full factual record of wrongdoing that should foster better development of the law.

But that means we need to be ready for that potential increase in litigation. If litigation is a giant tug of war, the attorneys who try the cases are the anchor of the team. Without a strong, steady, and successful cadre of these professionals, an agency’s ability to administer justice is diminished and any threat to take a defendant to court lacks credibility.

At the SEC, I am glad and proud to say that our attorneys who try our cases are incredibly skilled and effective. Over the past three years, our team has achieved an 80 percent success rate—a rate that may explain why most lawyers counsel their clients against going to trial against the SEC and why we achieve strong settlements in most of our cases.

The agency’s record is impressive, and much more so given the difficulty and complexity of the cases we try. Unlike our colleagues at the DOJ, we most often proceed without the benefit of cooperators, wiretaps, surveillance evidence, and many of the other tools at the disposal of prosecutors. In our cases, we often must rely heavily on circumstantial evidence, hostile witnesses, or on the cross-examination of the defendant in order to prove our case.

Expert testimony is often necessary to prove some of the elements of our offenses. Many of our fraud cases involve highly complex transactions carried out by sophisticated parties who work in multi-layered organizations and are overseen by a host of legal and professional advisers. And proving intent inside the courtroom in white-collar cases is always a difficult challenge.

Civil securities fraud cases are difficult for other reasons too. Before even getting to the question of who engaged in the violation, there is usually the threshold question whether a violation even occurred.

Anyone can see when a company misses its earnings projections or when a stock drops precipitously. But such facts may not necessarily be evidence of wrongdoing, and instead can be argued to have resulted from a bad business decision.

Our trial lawyers also are asked to explain to juries complex financial instruments with densely drafted disclosures and an alphabet soup of industry jargon. They often face a horde of lawyers on the other side. But they have shown that they won’t back down and are very much up to the task.

Just before one of our recent trials as the discovery phase was winding down, our team received an email rather dramatically titled, “Time to surrender.” It was from the defense counsel, who wrote “the time has come for the Division to abandon its claims against [the defendant]. … We are not going to rehash what has transpired during discovery, but it is painfully clear that your claims against [the defendant] are in tatters.”

But we had the strength of our convictions and an experienced trial team in place, and that team recently achieved a major victory after a five-week jury trial.

Conclusion

So in this age of diminishing trials, we at the SEC may be about to reverse the trend a bit. We need to make sure that we are always ready for the challenge, have the resources to do it, and do not in any other way diminish our strong enforcement program.

If, in fact, a result of our change in settlement policy results in more trials, one clear winner will be the administration of justice, which will always fare best in the open for the public to see and to take stock of what a defendant did and what its government is doing. It also would make our lives as lawyers and judges more interesting and, yes, in tribute to Tom Flannery, even more exciting from time to time. Also not a bad thing.