By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and Author of Jim Hamilton's World of Securities Regulation.
After agonizing over the substantial deference to be given to the SEC in approving the settlement of an agency enforcement action, a federal judge ruled that the consent judgment in an action against a large financial institution was neither fair, nor reasonable, nor adequate, nor in the public interest. It is not reasonable, said Judge Rakoff, because how can it ever be reasonable to impose substantial relief on the basis of mere allegations. It is not fair, because, despite Citigroup's nominal consent, there is a potential for abuse in imposing penalties on the basis of facts that are neither proven nor acknowledged patent. It is not adequate, because, in the absence of any facts, the court lacked a framework for determining adequacy. And, the proposed consent judgment does not serve the public interest because it asks the court to employ judicial power and assert judicial authority when it does not know the facts. Refusing to approve the proposed consent judgment, the court instead consolidated the case with an SEC enforcement action against an employee of the financial institution and directed the parties to be ready to try the case next July. SEC v. Citigroup Global Markets, Inc., 11 Civ. 7387, Nov. 28, 2011.