Jenner & Block

Client Alert: Second Circuit Reverses Judge Rakoff, Sets Low Bar for Approval of SEC Settlements

On June 4, 2014, the United States Court of Appeals for the Second Circuit reversed a November 2011 decision in which U.S. District Judge Jed Rakoff refused to approve a proposed consent decree reflecting an SEC settlement with Citigroup.  The Court of Appeals held that the district court had erred by 1) suggesting that factual findings were required before it could approve the consent decree; 2) considering whether the settlement assisted private plaintiffs challenging the same misconduct; and 3) analyzing whether the settlement adequately punished Citigroup.  Rather, the district court should have limited its review to determining whether the proposed consent decree was “procedurally proper.“  The Court of Appeals devised a four-part test for this assessment, including, most importantly, whether there was any collusion or corruption involved in obtaining the decree.  Although some district courts may initially apply this test to scrutinize more closely SEC settlements, the Court of Appeals’ decision is unlikely to present a meaningful obstacle to future SEC settlements.  The Court of Appeals’ decision is also unlikely to affect future choices by the SEC between litigating matters in federal courts or in administrative hearings.