The Wall Street Journal just ran a noteworthy article on Judge Jed Rakoff’s path-breaking judicial opinion. Judge Rakoff, a federal trial court judge who sits in the Southern District of New York, recently refused to approve a settlement between the Securities and Exchange Commission (SEC) and Citibank because the settlement omits any facts that would justify its approval as one that furthers the public interest. Judge Rakoff makes known his views on the public policy implications of the case when he discusses “the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives.”
Refusing to approve the settlement would either compel the defendant to admit wrongdoing, or force the SEC to drop the case, or litigate it. By failing to approve a settlement reached willingly by both parties as a matter of public interest, Judge Rakoff has departed from a customary practice. If the decision is sustained on appeal, it might create an important legal precedent that could curtail the harmful practices that are committed by some professionals in the financial industry.
Strategically, Citibank would likely refrain from appealing the case to avoid creating binding future precedent that would apply to itself and others in the financial industry. One might think that the SEC, as a public institution charged with protecting consumers, would be more inclined to appeal the matter to actually establish the precedent.
As the Wall Street Journal article suggests, however, the SEC often has settled cases with defendants in the financial industry as a practical compromise to avoid risks and expense. It is clear, based on Judge Rakoff’s ruling, that he believes practicality and expedience were not enough to warrant subverting the public interest.
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