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Judge Rakoff v. SEC and Citigroup

Robert M. Siegel

Judge Rakoff Not Going Out Quietly

In a story we’ve been following since the outset, on Monday, Judge Rakoff filed his brief before the Second Circuit Court of Appeals. It is not every day that you see a federal judge litigating against two parties who were theoretically adverse before him. But that is precisely the framework of this appeal.

As previously chronicled, the SEC and Citigroup entered into a $285 million settlement related to Citigroup’s mortgage backed securities, which Judge Rakoff refused to approve. The charges were originally intentional fraud, but the settlement only identified negligence. Judge Rakoff demanded further explanation, and for that he created an uncomfortable alliance between the entity charged with policing the fraud and the alleged fraudsters themselves.

Judge Rakoff: Admission of Liability not Required

In Judge Rakoff’s 75-page brief (he is represented by Pro Bono counsel though one may safely assume Judge Rakoff offered significant input/assistance), Judge Rakoff frames the issue as one of “judicial responsibility in the context of a case in which the parties failed to provide the district court with any factual record.”

Judge Rakoff again reiterated that while he did not require an admission of liability, he did require enough information to be able to make “an independent determination as to whether a federal agency’s proposed consent judgment is fair, adequate and reasonable, and . . .in the public interest.” Indeed, Judge Rakoff devoted substantial time in the brief to whether the Court of Appeal even has jurisdiction to hear the matter.

We salute Judge Rakoff.

The public’s interest was not served by the SEC apparently not wishing to pursue its charges that Citigroup committed a fraud. The meager settlement agreed to by the SEC deserves strict scrutiny, and Judge Rakoff appears just the right person to apply such a rigorous standard.

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