A federal judge in New York, who just three years ago rejected a $285 million fraud settlement between Citigroup and the Securities and Exchange Commission (SEC), now has followed the will of the 2nd Circuit Court of Appeals and approved the proposal.
The decision to approve the settlement by U.S. District Court Judge Jed Rakoff was supported by the SEC and appears to put the case to rest.
“We are pleased with the approval of the settlement that holds Citigroup accountable, deprives the firm of its ill-gotten gains, and provides $285 million for harmed investors,” Andrew Ceresney, SEC Enforcement Division director, said in a statement to InsideCounsel.
Earlier, Rakoff was particularly concerned that the settlement did not include an admission of guilt by Citigroup and questioned the size of the fine.
"The 2nd Circuit has spoken clearly as to what the standard will be as to approval of settlements with the SEC," according to David Parker, an attorney with Kleinberg, Kaplan, Wolff & Cohen, and who handles a lot of litigation involving hedge funds.
In his ruling, Rakoff was basically bound by what the 2nd Circuit said, but included in the three-page decision his opinion on the subject, Parker added in an interview with InsideCounsel.
“This case is back before the Court on remand from the Court of Appeals,” Rakoff said in his opinion. “They [the Court of Appeals] who must be obeyed have spoken, and this Court's duty is to faithfully fulfill their mandate.”
He had earlier rejected a proposed consent judgment on the case because parties “failed to provide the court with sufficient evidence to enable it to assess whether the agreement was fair, adequate, reasonable, and in the public interest,” Rakoff said in his ruling. But the Court of Appeals responded that this standard was mistaken and/or misapplied.
Among the 2nd Circuit’s key reasons for rejecting Rakoff’s earlier decision is that the "primary focus of the [district court's] inquiry … should be on ensuring the consent decree is procedurally proper ... taking care not to infringe on the SEC's discretionary authority to settle on a particular set of terms."
In his new ruling, Rakoff admitted that he cannot say that the consent judgment is “procedurally improper or in any material respect fails to comport with the very modest standard imposed by the Court of Appeals.”
But Rakoff did not leave his ruling at that; he issued a warning that goes well beyond the 2nd Circuit.
“This court fears that, as a result of the Court of Appeal's decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary's contempt powers will in practice be subject to no meaningful oversight whatsoever,” Rakoff said. “But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That court has now fixed the menu, leaving this court with nothing but sour grapes.”
Rakoff, who worked in a private law firm and was a federal prosecutor and chief of the Business and Securities Fraud Prosecutions Unit at the U.S. Attorney’s office in New York, is considered by many to be an authority on white-collar crime.
The Citigroup case is not the only time Rakoff rejected a proposed settlement, InsideCounselreported. In 2009, he rejected a $33 million settlement between the SEC and the Bank of America. Eventually, he approved a revised settlement of $150 million, saying it was “better than nothing,” and complained that it was “half-baked justice at best.”