“Fair, reasonable, adequate and in the public interest.”
The fad of judges rejecting settlements of civil complaints filed by the SEC – including jargon like “without admitting or denying wrongdoing” – is becoming a topic of much debate in dinner conversations.
Unhappy with Judge Rakoff’s decision about Citigroup Inc.’s settlement with the SEC, the latter has now filed for an appeal to the Second Circuit. If the settlement with the SEC “without admitting or denying wrongdoing” reduces in magnitude or comes on the radar for a strict scrutiny, companies will be more mindful of their exposure to liabilities in shareholder lawsuits.
Judge Rakoff rejected the settlement between the SEC and Citigroup. He said that the proposed agreement was not “fair, reasonable, adequate and in the public interest.” With the trend that Judge Rakoff has set in the Citigroup case, the crux of the public interest argument is becoming a reference for other judges to cite it in their cases involving such settlements with the SEC.
In one of the recent cases, the Wisconsin Judge Rudolph T. Randa asked the SEC to explain why the proposed settlement with Koss Corporation was “fair, adequate and in the public interest.” Judge Randa said that some of the provisions were “vague and could pose enforcement issues in the future.”
Judge Rakoff did initiate effort in the past to express his disinterest in approving such settlements. Perhaps, internal pressures led him to eventually approve these settlements.
The approval of the settlement between Bank of America (BoA) and the SEC in 2010 is a case in point. Judge Rakoff had nearly decided to reject the BoA-SEC settlement. Both parties could have then gone to trial. Yet, the judge reluctantly approved the settlement. He did, however, say that the agreement submitted was “half-baked justice at best.”
Two other cases – one with Barclays and the other, an unrelated instance involving Citigroup – in which each federal judge in the District of Columbia also raised the issue of adequacy of the proposed SEC settlements.
In a case involving a $3 million agreement between the S.E.C. and Vitesse Semiconductor and three former executives over improper accounting of revenues and backdating of stock options, Judge Rakoff, while approving the settlement, mentioned that the SEC was treating the court as a “rubber stamp.”
The professor of a U.S. Legal Systems course I was enrolled in, introduced me to concepts like the Doctrine of Stare Decisis and Dictum, citing a few cases where courts exercised their power through verdicts like the one Judge Rakoff gave in Citigroup’s case.
Would Judge Rakoff’s decision in the Citigroup case merely be dicta? Or would it become a precedent and be followed by other judges in their perusal of cases against proposed settlements between the SEC and the defendants in question? We will have to wait for Second Circuit’s decision to see what happens next.