Second Circuit Reverses Judge Rakoff's Rejection of “No Admission” SEC Settlement With Citi

In an opinion today reversing Judge Rakoff’s highly publicized decision to reject Citi’s $285 million settlement between the SEC and Citi that involved no admission of wrongdoing, the Second Circuit held that, in reviewing consent decrees with the SEC, district courts should not address the “adequacy” of settlements:

It is an abuse of discretion to require, as the district court did here, that the S.E.C. establish the “truth” of the allegations against a settling party as a condition for approving the consent decrees. Trials are primarily about the truth. Consent decrees are primarily about pragmatism. “[C]onsent decrees are normally compromises in which the parties give up something they might have won in litigation and waive their rights to litigation.” United States v. ITT Continental Baking Co., 420 U.S. 223, 235 (1975). Thus, a consent decree “must be construed as . . . written, and not as it might have been written had the plaintiff established his factual claims and legal theories in litigation.” United States v. Armour & Co., 402 U.S. 673, 682 (2d Cir. 1971). Consent decrees provide parties with a means to manage risk. “The numerous factors that affect a litigant’s decision whether to compromise a case or litigate it to the end include the value of the particular proposed compromise, the perceived likelihood of obtaining a still better settlement, the prospects of coming out better, or worse, after a full trial, and the resources that would need to be expended in the attempt.“ Citigroup III, 673 F.3d at 164. These assessments are uniquely for the litigants to make. It is not within the district court’s purview to demand “cold, hard, solid facts, established either by admissions or by trials,” Citigroup I, 827 F. Supp. 2d at 335, as to the truth of the allegations in the complaint as a condition for approving a consent decree.

The Second Circuit remanded to Judge Rakoff to re-evaluate the settlement under its newly announced standards. The ruling also will likely lead to approval of SAC Capital’s $614 million "no admission" settlement with the SEC, which Judge Marrero had conditioned on the outcome of the Citi appeal (see our post here).