Second Circuit Vacates Judge Rakoff’s Rejection of SEC’s Citigroup Settlement | The D&O Diary

As we discussed here the Second Circuit, not unexpectedly, overturned Judge Jed Rakoff's rejection of the S.E.C enforcement action settlement with Citigroup Global Markets in one of those big "collateralized debt obligation" deals in which Citigroup itself bet with the proponent of the deal  that the indexed securities would fall in price.  Citi did not disclose its own position.  Rakoff's rejection of the settlement as unsupported factually, containing no admission of fault, and of $350 million as "pocket change" galvanized public debate.  Kevin LaCroix lays out the June 4, 2014 Second Circuit opinion  and concludes with this take.. - gwc

Second Circuit Vacates Judge Rakoff’s Rejection of SEC’s Citigroup Settlement | The D&O Diary:

by Kevin LaCroix

Even though the Second Circuit rejected Judge Rakoff’s refusal to accept the Citigroup settlement, his unwillingness to accept the settlement has had a significant impact. It is arguable that the SEC might not have adopted its new policy requiring admissions of liability if Judge Rakoff had not forced the issue onto the enforcement agenda. Judge Rakoff’s concerns have also encouraged other judges to scrutinize SEC settlements and to ask hard questions about the terms on which the SEC has settled.

 But while Judge Rakoff’s rejection of the Citigroup settlement may have elevated the debate on these issues, in the end the appellate court flatly rejected Rakoff’s perspective on court’s role in reviewing SEC settlements. Rakoff’s opinion rejecting the settlement was emotional, projected a high moral tone, and reflected a theoretical consideration of the issues. The appellate court’s perspective, by contrast, was (it said itself of agency settlements) “pragmatic.” The appellate court’s opinion also reflected a more restrained and deferential conception of the role of the district court.

 While compromises of disputed claims are less satisfying than a determination of issues of fault and liability, the system might grind to a halt if parties cannot compromise, The practical reality is that if the SEC is not free to compromise disputed claims without an admission of liability, then the parties are going to be far less likely to compromise, an outcome that would impose enormous costs on the litigants and burdens on the courts.  

'via Blog this'