Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comFirm Insights
Second Circuit Revives SEC “Neither Admit nor Deny” Settlements
Author: Dan Brecher
Date: July 3, 2014
Key Contacts
Back
It turns out reports of the death of “neither admit nor deny” settlements between the Second Circuit Court and the Securities and Exchange Commission (SEC) were greatly exaggerated.
In a much-anticipated decision, the Second Circuit Court of Appeals recently reversed the ruling of Judge Jed. S. Rakoff, who had refused to approve the agency’s consent decree with Citigroup Global Markets Inc. (Citi).
The SEC entered into a consent decree with Citi in 2011 to resolve allegations that the company violated federal law in connection with certain mortgage-backed securities. While Citi agreed to pay a sizable financial penalty, the settlement did not include any admission of wrongdoing.
The SEC frequently settles cases on a “neither admit not deny” basis. However, Judge Rakoff refused to approve the consent decree, finding “it was bad policy, which disserved the public interest, for the SEC to allow Citigroup to settle on terms that did not establish its liability.”
The Second Circuit’s Decision
The Second Circuit concluded that the district court abused its discretion by applying an incorrect legal standard in its review of the consent decree and setting a trial date.
“It is an abuse of discretion to require, as the district court did here, that the SEC establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees. Trials are primarily about the truth. Consent decrees are primarily about pragmatism,” the Second Circuit held.
The appeals court further ruled that the district court failed to give the SEC the proper deference. “The job of determining whether the proposed SEC consent decree best serves the public interest … rests squarely with the SEC and its decision merits significant deference,” the court explained.
The Second Circuit remanded the case back to Judge Rakoff with instructions to reevaluate the consent decree under the standards articulated in its opinion.
Future SEC Settlements
The Second Circuit’s decision gives the green light to future SEC settlement agreements that do not contain admissions of liability, including the agency’s pending consent decree involving SAC Capital. However, as we have previously discussed on this Business Law Blog, the SEC has already made changes to its settlement policy. Earlier this year, Mary Jo White signaled that the agency would require admissions in some cases, such as those involving particularly egregious conduct or significant harm to the markets or investors.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Second Circuit Revives SEC “Neither Admit nor Deny” Settlements
Author: Dan Brecher
It turns out reports of the death of “neither admit nor deny” settlements between the Second Circuit Court and the Securities and Exchange Commission (SEC) were greatly exaggerated.
In a much-anticipated decision, the Second Circuit Court of Appeals recently reversed the ruling of Judge Jed. S. Rakoff, who had refused to approve the agency’s consent decree with Citigroup Global Markets Inc. (Citi).
The SEC entered into a consent decree with Citi in 2011 to resolve allegations that the company violated federal law in connection with certain mortgage-backed securities. While Citi agreed to pay a sizable financial penalty, the settlement did not include any admission of wrongdoing.
The SEC frequently settles cases on a “neither admit not deny” basis. However, Judge Rakoff refused to approve the consent decree, finding “it was bad policy, which disserved the public interest, for the SEC to allow Citigroup to settle on terms that did not establish its liability.”
The Second Circuit’s Decision
The Second Circuit concluded that the district court abused its discretion by applying an incorrect legal standard in its review of the consent decree and setting a trial date.
“It is an abuse of discretion to require, as the district court did here, that the SEC establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees. Trials are primarily about the truth. Consent decrees are primarily about pragmatism,” the Second Circuit held.
The appeals court further ruled that the district court failed to give the SEC the proper deference. “The job of determining whether the proposed SEC consent decree best serves the public interest … rests squarely with the SEC and its decision merits significant deference,” the court explained.
The Second Circuit remanded the case back to Judge Rakoff with instructions to reevaluate the consent decree under the standards articulated in its opinion.
Future SEC Settlements
The Second Circuit’s decision gives the green light to future SEC settlement agreements that do not contain admissions of liability, including the agency’s pending consent decree involving SAC Capital. However, as we have previously discussed on this Business Law Blog, the SEC has already made changes to its settlement policy. Earlier this year, Mary Jo White signaled that the agency would require admissions in some cases, such as those involving particularly egregious conduct or significant harm to the markets or investors.