Justice Rakoff of the U.S. Southern District Court of New York has begrudgingly agreed to approve a $285 million “no-contest” settlement between Citigroup Global Markets Inc. (“Citigroup”) and the SEC. The decision to approve the settlement follows the U.S. Court of Appeals for the Second Circuit’s (the “Appellate Court”) June 2014 rejection of Justice Rakoff’s original November 2011 decision to deny the settlement. The Appellate Court had sent the matter back to the District Court to be considered again, holding that Justice Rakoff had abused his discretion by refusing to approve the settlement on the basis that the SEC had not established the truth of the accusations made against Citigroup.

In approving the settlement, a clearly unsatisfied Justice Rakoff acknowledged that the Appellate Court had rejected his prior November 2011 reasoning for refusing to approve the settlement in, stating that “it would be a dereliction of duty for this Court to seek to evade the dictates of the [Appellate Court]” and further stating that the Appellate Court “has now fixed the menu, leaving this Court with nothing but sour grapes.” Despite the Appellate Court’s rejection of his reasoning, Justice Rakoff took the opportunity to again highlight his concern with “no-contest” settlements and the role of the court in approving them. Justice Rakoff stated that “this Court fears that, as a result of the [Appellate Court]’s decision, the settlements reached by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever.” The concerns of Justice Rakoff, though not persuasive enough to convince the Appellate Court, could yet influence oversight of “no-contest” settlements in Ontario by the OSC, where similar “no-contest” style settlements are now available.

In March 2014, OSC Staff  announced that it had amended its Credit for Cooperation Program to permit, in “limited circumstances,” alleged wrongdoers to settle cases launched against them without admitting to any “facts or liability”. The OSC has yet to consider a no-contest settlement proposed by Staff, but stakeholders on both sides of the issue have strenuously debated the court’s role in reviewing no-contest settlements since the idea was first introduced in 2011.

Whether or not the OSC follows the reasoning of the Appellate Court remains to be seen. Whatever the decision of the OSC on the operation of no-contest settlements in Ontario, the concerns articulated by Justice Rakoff and like minded securities law experts will have to be closely scrutinized.