Just when U.S. District Judge Jed Rakoff was about wallow in his robes crying, "No one understands me" like a 17-year-old girl in a young adult novel, The Wall Street Journal reports that a group of law professors have stepped up to say that Rakoff was well within his power to reject the proposed settlement between the Securities and Exchange Commission (SEC) and Citigroup.
Last November, Judge Rakoff blocked the settlement over a mortgage-bond deal because the SEC didn't provide the court with facts "upon which to exercise even a modest degree of independent judgment." In the opinion, which described the $285 million settlement as "pocket change," Judge Rakoff noted that "there is an overriding public interest in knowing the truth," and the SEC "has a duty ... to see that the truth emerges." Instead of disposing of the matter, Judge Rakoff ordered to parties to move forward with a trial.
The SEC is challenging Judge Rakoff's consent judgment rejection in the Second Circuit Court of Appeals. SEC attorneys argue that courts haven't required an admission of facts to support a consent judgment in the past, so an admission shouldn't be required now.
But the law professors claim that Judge Rakoff isn't just being ornery. In an amicus brief filed on Thursday, 20 legal scholars expressed concern about the SEC's slap-on-the-wrist settlements. They wrote:
As scholars who study the SEC, we have concerns about the agency's practice of settling enforcement actions alleging serious fraud without any acknowledgement of facts, on the basis of a pro forma "obey the law" injunction, a commitment to undertake modest remedial measures and insubstantial financial penalties. The prevalence of this practice is precisely why federal district courts must have discretion, when reviewing consent judgments between a government agency and a private party that include an injunction, to take into account the public interest.
Furthermore, both Rakoff and the amici argued in briefs that the Second Circuit Court of Appeals missed the real reason behind the rejection.
In March, the Second Circuit criticized Rakoff's order in the case, stating, "The court does not appear to have given deference to the SEC's judgment on wholly discretionary matters of policy ... The district court believed it was a bad policy, which disserved the public interest, for the SEC to allow Citigroup to settle on terms that did not establish its liability. It is not, however, the proper function of federal courts to dictate policy to executive administrative agencies."
John "Rusty" Wing, the attorney representing Judge Rakoff in the appeal, explained in a brief this week that the appellate court misunderstood Rakoff's ruling. "The district court's actual holding repeatedly referred to its inability to determine whether the consent judgment met the well-established standards because it had not been provided with any evidentiary facts on which to make that determination," Wing wrote. (Brief thanks, again, to the Wall Street Journal Law Blog.)
Does that clarification change your feelings about the case? Who do you think will prevail on appeal? The SEC or Judge Rakoff and his friends?
- Judge Rejects SEC Settlement with Citigroup (FindLaw's Decided)
- No Admission, No Problem Says SEC Consent Judgment Appeal (FindLaw's Second Circuit Blog)
- Will Judge Rakoff Be Represented in Second Cir. Citigroup Appeal? (FindLaw's Second Circuit Blog)