Harry Cassin Publisher and Editor

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Richard L. Cassin Editor at Large

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Thomas Fox Contributing Editor

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Bill Steinman Contributing Editor

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Second circuit says Judge Rakoff was wrong to reject SEC, Citigroup settlement

U.S. Federal District Judge Jed S. RakoffA three-judge panel of the United States Court of Appeals for the Second Circuit ruled Wednesday that Judge Jed S. Rakoff made a mistake when he rejected a negotiated settlement between the SEC and Citigroup three years ago.

Judge Rakoff had refused to approve the 2011 settlement because it was too lenient, he said.

The appeals court said the judge “abused [his] discretion by applying an incorrect legal standard" of review.

Citigroup had agreed with the SEC to pay $285 million to settle a civil fraud case related to the sale of mortgage bonds during the housing boom.

Judge Rakoff said then the settlement was pocket change for the bank.

He also criticized the SEC's decision to let Citigroup settle without an admission of wrongdoing.

Judge Rakoff, 70, was nominated by President Bill Clinton to the federal bench for the Southern District of New York in 1996. He's now on senior status.

The Second Circuit said Wednesday that SEC settlements through consent decrees are "primarily about pragmatism” and the agency should be given wide discretion.

The panel said trial courts should approve SEC settlements if they're fair and reasonable and wouldn't be a disservice to the public.

After today's appellate decision, the SEC said: "We are pleased with today’s ruling by the Second Circuit Court of Appeals reaffirming the significant deference accorded to the SEC in determining whether to settle with parties and on what terms." 

"While the SEC has and will continue to seek admissions in appropriate cases," the agency said, "settlements without admissions also enable regulatory agencies to serve the public interest by returning money to harmed investors more quickly, without the uncertainty and delay from litigation and without the need to expend additional agency resources.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.