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Analysis: Effects of the Citigroup Ruling

On his FundLaw news group, Stradley Ronon's John Baker analyzed the fallout from the recent Citigroup ruling where a court refused to approve a consent judgment sought by the SEC.  The proposed consent judgment would have levied several large fines on Citigroup and imposed a permanent injunction against future violations.  Consistent with usual SEC practice, it also stated that Citigroup neither admitted nor denied the SEC allegations.  Largely due to this language, federal district court Judge Rakoff refused to approve the consent judgment stating that it was "neither fair, nor reasonable, nor adequate, nor in the public interest."  Robert Khuzami, Director of the Division of Enforcement, responded in a public statement that this practice of settling cases without a defendant's admission of wrongful conduct has significant advantages and is widely accepted. 

In his analysis, John Baker states that although Rakoff's opinion is an outlier, it could give the SEC a strong incentive to bring enforcement actions as administrative proceedings rather than as court actions.  Currently, the SEC is more limited in the amount of monetary penalties it can obtain in administrative proceedings.  However, in a recent letter to Congress, SEC Chairman Schapiro asked for several changes to the types of penalties the SEC may levy for securities law violations, including a change that would allow the same monetary penalties to be assessed in both administrative proceedings and court actions.

Judge Rakoff's opinion is available here.