It is commonplace for settlements to include no binding admission of liability. A settlement is by definition a compromise. We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.
Having considered the various explanations given by the district court for its refusal to permit the settlement, we conclude that the S.E.C. and Citigroup have a strong likelihood of success in their joint effort to overturn the district court’s ruling.
(A quick refresher on this case, after the jump.)
The accord [between the SEC and Citigroup], announced in October, was intended to resolve civil fraud charges that Citigroup sold $1 billion of risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt, and causing more than $700 million of losses.
Rakoff rejected the settlement on Nov. 28. He said the SEC’s failure to require Citigroup to admit or deny the charges left him no way to know whether the settlement was fair. That part of the ruling called into question the SEC’s decades-long practice of not requiring settling companies to admit or deny its charges. He also called the $285 million payout “pocket change” for the third-largest U.S. bank, and said the accord did not serve the public interest.
It seems that Judge Rakoff’s legal analysis may not be long for this world:
The 2nd U.S. Circuit Court of Appeals said that U.S. District Judge Jed Rakoff in Manhattan appeared to have failed to give proper deference to the SEC, and may have overlooked the potential that Citigroup did nothing wrong.
While saying it needed to hear further arguments, the 2nd Circuit said there was a “strong” likelihood that Rakoff’s decision would be overturned.
What did Judge Rakoff have to say about the Second Circuit’s ruling? Alas, he was unavailable for comment; he’s busy sitting by designation this week… with the Second Circuit.