June 5, 2014

SEC Enforcement Gets a Boost! Second Circuit Vacates Judge Rakoff’s Settlement Rejection

Just in time for the SEC’s 80th birthday (tomorrow is 80 years since the ’34 Act was signed into law), comes this news from Paul Weiss (we will be posting memos in our “SEC Enforcement” Practice Area):

Yesterday, the United States Court of Appeals for the Second Circuit issued a significant decision in SEC v. Citigroup Global Markets Inc., in which it concluded that the district court’s refusal to approve a consent judgment between the SEC and Citigroup was an abuse of discretion. On November 28, 2011, the district court rejected this consent judgment, in which Citigroup neither admitted nor denied the allegations, because of a lack of “cold, hard, solid facts, established by admissions or by trials.” The Second Circuit’s decision effectively rejects the proposition that district courts may substantively review regulatory consent judgments, and consequently endorses the ability of the SEC and other regulatory agencies to enter into “no admit, no deny” settlements.

This decision should undermine the increasing trend in the district courts to second-guess the remedies agreed to by regulators and defendants, and the concomitant media and political pressure to do so. The Second Circuit’s decision sharply delineates the respective roles of regulatory agencies and the courts, emphasizing that the SEC is charged with exercising discretionary judgment as to whether a settlement is in the public interest, and that courts are to defer to that assessment.

Also see this blog by David Smyth entitled “Judge Rakoff Reversed by Second Circuit on SEC-Citi case, Still Sort of Wins”…

SEC Enforcement: A Focus on Lawyers?

A recent speech by SEC Chair White – and one by Commissioner Kara Stein – has lawyers listening. That’s because they discussed the role of individuals in matters that lead to enforcement actions, including the novel idea of using Section 20(b) of the Exchange Act – with Commissioner Stein particularly focusing on lawyers. Here are a few articles on this:

Davis Polk’s “SEC Commissioners Emphasize Focus on Individuals, Including Lawyers, in Enforcement Cases, and Brings an Auditor Independence Action Against an Audit Partner”’s “Mary Jo White Explains Enforcement Action Decisions”
DealBook’s “S.E.C. Vows More Use of a Little-Used Tool

Also see this Morgan Lewis blog about “Enforcement Case Shows SEC’s Increased Focus on Internal Controls”…

Another Rule 506 Bad Actor Waiver for Credit Suisse

As a follow-up to my blog noting a number of bad actor waivers, Corp Fin granted a second bad actor waiver to Credit Suisse a few weeks ago. This latest one is a bit different from the others since it is an “Order of the Commission” and it is specifically designed to give relief to certain current funds, third party issuers and portfolio companies affiliated with Credit Suisse (here’s the request). Rule 506(d)(2) provides that the disqualification “shall not apply . . . upon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied.”

– Broc Romanek