Rakoff's Decision in 'SEC v. Citigroup': What's All the Fuss About?

Judge Jed Rakoff’s recent opinion rejecting the parties’ proposed settlement in U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., No. 11 Civ. 7387 (JSR) 2011 WL 5903733 (SDNY, Nov. 28, 2011), led to an immediate outcry by practitioners and business leaders alike. “The Court undercut the SEC’s authority” and “no defendant would ever again settle with the Commission” have been popular refrains. In fact, some noted practitioners have even construed the opinion as requiring an admission of wrongdoing in order for a settlement to receive court approval.¹ These criticisms and observations are misplaced.

There was nothing remarkable about Judge Rakoff’s ruling: What was remarkable was the parties’ expectation that the court would approve the proposed settlement on the barest of factual records. At the heart of the court’s decision is the well-founded requirement that the parties must provide a proper factual basis before a court will lend its judicial imprimatur to a settlement or issue, in the words of Judge Rakoff, the “powerful remedy” of injunctive relief.