The U.S. Court of Appeals for the Second Circuit finally issued its ruling in Securities and Exchange Commission v. Citigroup Global Markets. Boy is it depressing. It’s not that I think the court’s bottom-line decision is so wrong. The judges have a decent argument that Manhattan U.S. District Judge Jed Rakoff crossed the line when he refused to approve the SEC’s $285 million settlement with Citi over the marketing of collateralized debt obligations. Rakoff objected that the parties didn’t give him enough information about the case to determine if the proposed settlement was in the public interest.
While I wish the court had upheld Rakoff, I’m not shocked that the panel came out where it did, finding that Rakoff engaged in inappropriate policy making. (The New York Law Journal has more on the decision here.) I also think the Second Circuit could have found the legal support to uphold Rakoff, if it wanted to.
What’s so depressing is the language the Second Circuit uses to talk about this case and other government settlements. “Consent decrees are primarily about pragmatism,” states Judge Rosemary Pooler, who wrote the unanimous decision. “Consent decrees provide parties with a means to manage risk.” And courts have very little role to play when reviewing these deals. “These assessments [that go into settlements] are uniquely for the litigants to make,” the court held.
So the SEC’s settlement with Citi is just another commercial transaction, driven by a cost-benefit analysis. The agency is managing risk, just like any other business attuned to the bottom line, according to the Second Circuit. Expediency, not justice, is the guiding principle.
I’d feel a lot better if the Second Circuit at least addressed the sorry state of affairs that led Rakoff to take this extraordinary action. The Second Circuit doesn’t even touch the question of whether the SEC is fulfilling its mission of protecting investors. I’d also feel better if the Second Circuit expressed more concern about the public’s interest in fair and transparent public markets.
Instead, the Second Circuit flatly stated—without any discussion—that the public has no interest in knowing the truth about the marketplace. In fact, as evidence that Rakoff abused his discretion, the court pointed to his assertion that the public “has an overriding interest in knowing the truth.” It turns out we don’t, according to Pooler, who was joined by Judges Raymond Lohier and Susan Carney.
Finally, I might ask, why did it take the Second Circuit more than 30 months to issue this ruling? As I pointed out in a column this past March, this case has been in limbo since 2011. A ruling like this—which is so curtly dismissive of all the important questions that Rakoff raises—could have been written in a day.
Summary Judgment is American Lawyer senior writer Susan Beck’s regular opinion column for the Litigation Daily.