A U.S. appeals court on Wednesday said a federal judge abused his discretion by rejecting a $285 million fraud settlement between Citigroup Inc and the U.S. Securities and Exchange Commission, handing the regulator a victory as it drives to get tougher on enforcement.
The 2nd U.S. Circuit Court of Appeals in New York said U.S. District Judge Jed Rakoff failed in his ruling to give “significant deference” to the SEC’s decision to settle, and was wrong to require the regulator to establish the “truth” of what it alleged.
Rakoff had faulted the SEC’s longtime policy of letting some corporate defendants settle without admitting or denying its charges. Wednesday’s decision may make it easier for the SEC to win settlements without having to worry about federal judges rejecting them because of an absence of proven facts, legal experts said.
“It is an abuse of discretion to require, as the district court did here, that the SEC establish the “truth” of the allegations against a settling party as a condition for approving the consent decree,” Circuit Judge Rosemary Pooler wrote for a three-judge 2nd Circuit panel. “The district court’s failure to make the proper inquiry constitutes legal error.”
The 2nd Circuit returned the case to Rakoff, who must review the settlement again unless he pursues a further appeal. One judge on the panel, Raymond Lohier, said he would have ordered Rakoff to approve the accord.