As a follow up to our post of December 15, where we asked whether settling enforcement actions might become harder after Judge Jed Rakoff rejected the recent settlement between the SEC and Citigroup, one thing is clear, it will certainly be harder for the SEC to settle cases before federal judges like Rakoff who may be troubled by settlements in which a defendant is allowed to neither admit nor deny liability when accused of securities fraud.
The Washingon Post story on Judge Rakoff’s order accusing the SEC of misleading him and the federal appeals court, by among other things, failing to give him notice of the SEC’s emergency request to the appeals court to stop the judge from rejecting the Citigroup settlement, may have gotten for the SEC the opposite kind of attention it wanted when it first announced what it thought was a great settlement. If Rakoff turns out to be right, this new and unwanted attention may come from federal judges who may begin to question more thoroughly both the SEC’s motives and tactics in settling such cases. For the SEC, this could mean having to conduct longer investigations with an eye toward expecting to have a long trial, or, alternatively, foregoing court actions and opting for administrative actions. In the future, to avoid federal judges questioning such settlements, the SEC may decide its easier to take the latter route.