Second Circuit Court of Appeals May Uphold Citigroup Settlement with the SEC

Several months ago we reported about Judge Jed Rackoff’s rejection of a settlement between the SEC and Citigroup for its marketing of collateralized debt obligations.  The judge found insufficient facts that the settlement was reasonable or in the public interest because Citibank would not admit to liability.   That decision is now on appeal to the United States Court of Appeals for the Second Circuit.  That court recently stayed Judge Rackoff’s order, concluding that the parties had shown a substantial likelihood of prevailing on appeal.  Addressing the issue of the propriety of the stay, the Court of Appeals rejected Judge Rackoff’s reasoning that settlement without an admission of liability failed to serve the public interests because the rationale prejudged whether the SEC could prevail at trial.  The court also found that requiring an admission of liability could undermine the ability to settle.  They also rejected Judge Rackoff’s finding that the settlement was unfair to Citigroup.  The Court of Appeals reasoned that Citigroup was in the best position to gauge its best interests.  Although the Court of Appeals will later rule on the merits of Judge Rackoff’s decision, the ruling on the stay provides a preview of what is likely to come in the opinion.

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