Second Circuit Mixes Clarity with Opacity in Ruling on Trial Courts’ Review of SEC Settlement

MatskoGuest Commentary

by Gary S. Matsko, Davis Malm & D’Agostine P.C.

It is curious how an appellate court can resolve cases before it in a manner and spirit that are vastly at odds with the driving philosophy behind the lower court’s decision. The U.S. Court of Appeals for the Second Circuit’s decision in United States Securities and Exchange Commission v. CitiGroup Global Markets, Inc.is such a case. Judge Jed Rakoff’s decision below, S.E.C. v. CitiGroup Global Markets, Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011), in which he declined to enter a consent decree that resulted from settlement negotiations, was driven by the judge’s intense displeasure that the settlement presented to him failed to include an admission of guilty. The decision emboldened advocates who believed that the SEC should require admissions, and likely played a role in the agency announcing that it would so require them in certain matters.

The counsel appointed to represent Judge Rakoff’s view in the Second Circuit did not forcefully argue that a trial court could require admission as a predicate to approving settlement. The Second Circuit thus curtly brushed that perspective aside. Instead, the appellate court clipped the wings of trial judges who embrace an expansive substantive role for courts in reviewing consent decrees, underscoring the deference owed to a prosecuting agency. Despite that distinct conclusion, CitiGroup Global Markets did not offer clear guidance on the trial court’s role in assessing facts, and, surprisingly, invited the SEC to turn to its administrative forum if it is unhappy with the remaining limited intervention reserved to the trial judge. Continue reading “Second Circuit Mixes Clarity with Opacity in Ruling on Trial Courts’ Review of SEC Settlement”