Today, the Second Circuit Court of Appeals vacated Judge Rakoff’s November 28, 2011 Order, which rejected the Citigroup-SEC settlement on a number of grounds, including that it allowed Citigroup to avoid admitting guilt. We have covered this settlement extensively (see, herehere and here).

Circuit Judges Pooler, Lohier and Carney’s opinion found three specific errors by the District Court:

  1. the court found that the District Court had abused its discretion by requiring that the SEC “establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees.”
  2. the court found that the District Court committed “legal error” when it “made no findings that the injunctive relief proposed in the consent decree would disserve the public interest, in part because it defined the public interests as ‘an overriding interest in knowing the truth.’” The court found that disagreement with the “SEC’s decisions on discretionary policy” — such as deciding to settle without admission of liability — was not a proper ground to find that the public interest was disserved.  However, the court also specifically found that the District Court did not “condition” approval of the settlement on an admission of liability.
  3. the court found that “to the extent the district court withheld approval of the consent decree on the ground that it believed the SEC failed to bring the proper charges against Citigroup, that constituted an abuse of discretion.”

Judge Lohier wrote a separate concurring opinion, observing that he would be inclined to reverse rather than vacate and remand, because it did not appear that any additional facts are necessary to determine that the proposed decree is “fair and reasonable” — however, Judge Lohier found no harm in  vacating and remanding to allow “the very able and distinguished District Judge to make that determination in the first instance.”

While the Second Circuit vacated the decision, in the almost 3 years since Judge Rakoff’s November 2011 order, there have been some changes in SEC policy.  In January 2012, as we reported, the SEC announced that it would require admissions in securities cases where defendants have been convicted of or admitted to criminal conduct in related proceedings.