SDNY Judge Approves RMBS Consent Judgment But Questions Second Circuit's Standard For Reviewing Agency Consent Judgments

RMBS SEC Enforcement SDNY

On August 5, U.S. District Court for the Southern District of New York Judge Jed Rakoff approved a consent judgment between the SEC and a financial institution to resolve allegations that the institution violated securities laws in connection with certain mortgage-backed securities. SEC v. Citigroup Global Markets Inc., No. 11-7387, 2014 WL 3827497 (S.D.N.Y. Aug. 5, 2014). Earlier this year, the U.S. Court of Appeals for the Second Circuit vacated and remanded the district court’s earlier decision to reject the proposed settlement, holding that the proper standard for reviewing a proposed enforcement agency consent judgment is whether the proposed consent decree is fair and reasonable, and in the event the agreement includes injunctive relief, whether “the public interest would not be disserved.” On remand, Judge Rakoff approved the consent judgment stating that based on the underlying record, “the Court cannot say that the proposed Consent Judgment is procedurally improper or in any material respect fails to comport with the very modest standard imposed by the Court of Appeals.” Judge Rakoff noted his concern, however, that “as a result of the Court of Appeals decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever.”