Second Circuit Says Judge Rakoff Shouldn't Dictate Policy to Feds

Beware the Ides of March, Judge Rakoff.

The Second Circuit Court of Appeals announced Thursday that it will delay the SEC-Citigroup civil fraud trial, finding that the litigants are likely to prevail in their settlement appeal, reports The Wall Street Journal. District Court Judge Jed Rakoff had previously scheduled the trial to begin in July.

Judge Rakoff blocked a $285 million settlement between the SEC and Citigroup in November, calling the sum "pocket change" and claiming that Citigroup should admit fault in the settlement. According to Judge Rakoff, "there is an overriding public interest in knowing the truth," and the SEC "has a duty ... to see that the truth emerges."

The SEC asked the Second Circuit Court of Appeals to overrule Rakoff and allow the settlement to move forward. In their appeal, the SEC argued that courts haven't required an admission of facts to support a consent judgment in the past, so Judge Rakoff should not require an admission as a precondition to approving the Citigroup settlement.

In a per curiam opinion, the Second Circuit criticized Rakoff's order in the case, stating, "The court does not appear to have given deference to the SEC's judgment on wholly discretionary matters of polic y... The district court believed it was a bad policy, which disserved the public interest, for the SEC to allow Citigroup to settle on terms that did not establish its liability. It is not, however, the proper function of federal courts to dictate policy to executive administrative agencies."

The appellate court further noted that "the scope of a court's authority to second-guess an agency's discretionary and policy-based decision to settle is at best minimal."

While the Second Circuit's opinion is a stinging rebuke on Judge Rakoff's decision to substitute the SEC's policy with his own, it's not the proverbial dagger-in-the-back for which the Ides are known: Since the SEC and Citigroup are in agreement on the settlement, the appellate court will keep the adversarial process alive by appointing a lawyer to represent Judge Rakoff's position on the matter, reports The Wall Street Journal.

Related Resources:

• SEC v. Citigroup Global Markets (Second Circuit Court of Appeals)
• Will Judge Rakoff Be Represented in Second Cir. Citigroup Appeal? (FindLaw's Second Circuit Blog)
• Beware the Ides of March? (The Washington Post)
• Second Circuit Could Hear Citigroup Consent Judgment Appeal (FindLaw's Second Circuit Blog)