This previous post discussed the recent order by Judge Jed Rakoff (S.D.N.Y.) in the SEC v. Citigroup matter in which Judge Rakoff requested answers to several questions concerning SEC enforcement policy. As noted in the prior post, although the Citigroup matter is not an FCPA enforcement action, many of the questions posed by Judge Rakoff could also be asked in SEC FCPA enforcement actions such as “why should the Court impose a judgment in a case in which the S.E.C. alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?” As noted in the prior post, Judge Rakoff has been vocal critic in recent years of the SEC’s neither admit nor deny settlement procedure – a procedure used in SEC FCPA enforcement actions.
Last week, the SEC and Citigroup addressed Judge Rakoff’s questions, including as to neither admit nor deny.
In its brief (here), the SEC stated, in pertinent part, as follows.
“Obviously, there are advantages and disadvantages to both parties in a no admit/deny consent judgment. The defendant is not subject to collateral estoppel with regard to the claims asserted, but at the same time investors are able to pursue any available private remedies in addition to the relief obtained by the SEC. On the other hand, the Commission is able to bring the matter to a speedy resolution, obtain compensation for victims in a timely manner, and allocate its limited resources to bringing additional enforcement actions for the protection of still more investors. Courts repeatedly have recognized the balance of advantages and disadvantages in settlements entered pursuant to the no admit/deny policy and expressed a reluctance to upset that balance. The Commission respectfully submits that this Court should do the same.” (internal citations omitted).
In its brief (here), Citigroup stated, in pertinent part, as follows.
“[Citigroup] defers to the SEC with respect to its enforcement policies and practices, and agency decisions, regarding when and under what circumstances to resolve matters through settlement.”
“[Citigroup] respectfully submits that, as a general matter, the ‘public interest’ is served by sophisticated litigants compromising complicated matters in a manner that avoids wasteful litigation and exposing both parties to extreme results. In evaluating whether the Proposed Judgment is fair, reasonable, adequate, and in the public interest, we respectfully submit that the Court should consider the potential impact on Citigroup Inc.’s shareholders of any outcome other than a negotiated, ‘no admit, no deny’ settlement. Here, Citigroup’s management and Board exercised their business judgment in choosing to settle the matter on these terms and avoid a litigated proceeding with the SEC and the host of adverse collateral consequences that course would entail.”
“This Court has cataloged the many risks faced by a public company that chooses to engage in protracted litigation with its regulators, including private litigation risk, reputational harm, and the risk of collateral regulatory consequences. These concerns, while present in virtually every SEC enforcement action, are magnified for financial institutions in today’s punitive market environment, where litigating with a regulator may have devastating consequences (regardless of the strength of the institution’s defenses).” (internal citations omitted).
“Citigroup’s management and Board also appropriately considered the potential substantial adverse collateral consequences to Citigroup if it chose to litigate (and ultimately were to lose) a lawsuit against the SEC or settle in a manner in which it was required to ‘admit’ liability.”
Even though SEC v. Citigroup is not an FCPA matter, the questions Judge Rakoff is asking, and the parties responses, provide valuable insight into the same SEC enforcement procedures used in FCPA enforcement actions. The matter also provides a rare public glimpse into what is often not aired in public – the motivations of settling parties in a government action, including the motivations of a corporate litigant to settle a dispute with a primary regulator for ease and efficiency. Thus, while outside the FCPA context, SEC v. Citigroup is a case to follow. Judge Rakoff has indicated he will soon author a written decision on whether to accept the settlement.
