Judge Rakoff Gets a Little of His Own Medicine

By Cydney Posner

As you may recall, in the Citigroup case (see my articles of 10/27/11 and 11/9/11), Judge Jed Rakoff sternly rejected the SEC's $285M settlement with Citigroup (over the sale of mortgage-related investments before the financial crisis), largely on the basis that the settlement involved no admission of guilt by Citigroup. This article from the NYT's DealBook, reports that a three-judge panel of the Court of Appeals for the Second Circuit today agreed with the SEC's contention that requiring an admission of guilt "would in most cases undermine any chance for compromise." The panel stated that they were "satisfied that the S.E.C. and Citigroup have made a strong showing of likelihood of success in setting aside the district court's rejection of their settlement." Accordingly, the court ordered a stay of the trial on the fraud charges that had been scheduled by Judge Rakoff and said the merits of the judge's rejection of the proposed settlement would be argued before the appeals court. The opinion gave Judge Rakoff a little of his own medicine: Judge Rakoff's decision "does not appear to have given deference to the S.E.C.'s judgment on wholly discretionary matters of policy….It is not, however, the proper function of federal courts to dictate policy to executive administrative agencies."

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