In SEC v. Citigroup Global Markets, Inc., Judge Rakoff rejected a $285 million settlement between the Securities and Exchange Commission (“SEC” or “Commission”) and Citigroup. The complaint alleged that Citigroup failed to disclose its role in the selection of assets for a billion dollar collaterized debt obligation. Judge Rakoff rejected the consent judgment, concluding it was neither fair, nor reasonable, nor adequate, nor in the public’s interest. The critical issue in Judge Rakoff’s decision was the validity of the SEC’s “no admit/deny” policy, which is a policy that has long been accepted by courts. He objected to this policy because it required the court to employ its power without the parties providing him a factual basis, which constrained his ability to exercise his independent judgment. This decision has great implications for the SEC’s enforcement program. The SEC relied on courts’ longtime acceptance of a standard that produced an efficient and effective process with regards to consent judgments.

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