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No Admission, No Problem Says SEC Consent Judgment Appeal

By Robyn Hagan Cain on December 21, 2011 3:05 PM

U.S. District Judge Jed Rakoff gets peeved whenever the Securities and Exchange Commission settles a case with a mega-bank for minor bucks.

In 2009, Judge Rakoff blocked an initial SEC settlement with Bank of America over misleading disclosures because "the settlement did not resolve who was responsible for the violation," reports The New York Times. In November, Rakoff similarly blocked an SEC settlement with Citigroup 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."

Last week, the SEC announced its intent to challenge Judge Rakoff's consent judgment rejection with the Second Circuit Court of Appeals. The argument? Courts haven't required an admission of facts to support a consent judgment in the past, so an admission shouldn't be required now.

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."

SEC enforcement director Robert Khuzami counters that it is unwise to reject settlements simply for lack of an admission of facts, reports The Wall Street Journal.

"We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the [Second Circuit Court of Appeals]," Khuzami said in a statement.

Judge Rakoff frequently criticizes SEC settlements for failure to serve the public interest, and his interpretation of "public interest" clearly includes an admission of fact. (Rakoff wrote in a March 2011 opinion that the Justice Department rarely enters into nolo contendere pleas for the same reason.) The SEC, however, believes that requiring an admission of facts would result in fewer settlements.

What do you think? Is the public interest better-served through more admission-free settlements that return money to investors, or fewer consent judgments that include a liability determination?

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