Tariffs-Free Regulatory Importing?
Asad Akhtar
Rakoff went on to highlight the challenges with the SEC’s suggestion of Citigroup committing
fraud, but its decision to only allege negligence.106 He determined the civil penalties imposed by
the SEC were insufficient to serve a punitive measure for an entity the size of the respondent.
He also determined the settlement, and no-contest settlements in general, deprives the court of
even the most minimal assurances that the injunctive relief has a basis in fact.107
Appeal & Clarification on Role of the Court
Despite Rakoff’s damning commentary, his decision was overturned on appeal. Judge
Pooler, for the Second Circuit, concluded the determination of the public interest lies with the
SEC and its substantive decisions warrant deference from the judiciary.108 While some instances
may require additional inquiries into the consent decree being “fair and reasonable”, the primary
role of the District Court is ensuring it was procedurally proper.109 Of particular interest, the
Second Circuit omitted the adequacy factor as a element to be considered in reviewing a consent
decree.
3. Recent Policy Changes
While Citigroup has reinforced the continued use of no-contest settlements, the agency
voluntarily adopted changes regarding the eligibility of respondents to enter into these
agreements. In January of 2012, the SEC announced that respondents who have admitted to, or
have been convicted of, a criminal offence may not settle a parallel civil proceeding brought by
Ibid at 2. In his decision, Rakoff seems to suggest ulterior motives in play for the SEC’s course of action.
Judge Rakoff’s exact phrasing is the following: “the SEC's long-standing policy - hallowed by history, but not
by reason - of allowing defendants to enter into consent judgments without admitting or denying the underlying
allegations, deprives the court of even the most minimal assurance that the substantial injunctive relief it is being
asked to impose has any basis in fact... An application of judicial power that does not rest on facts is worse than
mindless, it is inherently dangerous... If its deployment does not rest on facts - cold, hard, solid facts, established
either by admissions or by trials - it serves no lawful or moral purpose and is simply an engine of oppression”.
106
107
108
Supra note 105 at 1290-1291.
Michael Oppen & Penelope Blair, “Judge Rakoff’s ‘Sour Grapes’: SEC v Citigroup Settlement Approved” Orrick
(August 12, 2014) Online: Orrick Securities Litigation, Investigation and Enforcement .
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