As I have discussed here at length, there was basically just one judge on the 41-judge bench of the Southern District of New York that the SEC reeeeaaaaaaaalllllllllllly did not want to draw for its settlement with Citigroup: Judge Jed Rakoff.

Judge Rakoff had made it abundantly clear in his prior orders in the Bank of America case and the more recent Vitesse case that he was not a believer in the SEC's practice of not requiring defendants to admit any wrongdoing, and he indicated that the next time he was presented with such a settlement he would that he address the "substantial questions of whether the Court can approve other settlements that involve the practice of ‘'neither admitting nor denying.'''

Of course, we know now that (a) the SEC somehow did beat "1 out of 41 odds" and drew Judge Rakoff for the case, and (b) Judge Rakoff rejected the Citigroup settlement, lambasting all of the parties in the process.

So now what? You could say that the odds are against the SEC drawing Judge Rakoff again anytime soon, but that has been said a couple of times now and it keeps being proven wrong. In any event, it is now quite unclear whether this latest shot from Judge Rakoff will lead, as Prof. Peter Henning discussed today in his DealBook column, 

to an end to the S.E.C.'s policy of settling its cases without any admission of liability by the defendant. Although Judge Rakoff is only one federal district judge, his approach may be influential with other judges who do not wish to be seen as mere “rubber stamps” for the S.E.C.

One option available to the SEC is to appeal the judge's decision. As a commenter on Prof. Henning's column points out, Judge Rakoff's view of the "public interest" involved here seems to focus solely on the resolution of the Citigroup case, rather than on the SEC's "overall effectiveness in enforcing the law....There are a variety of problems, to say the least, with a federal judge deciding how the SEC's time and resources would be best allocated to maximize its overall effectiveness in enforcing the law."

Another option available to the SEC is to start bringing more cases as administrative proceedings, which do not require the approval of a federal court. Prior to Dodd-Frank, the SEC could only bring APs seeking civil penalties against regulated entities, but Section 929P of Dodd-Frank permits the SEC to seek civil penalties against non-regulated persons in administrative proceedings, as well. One key difference in bringing an AP, however, is the much lower penalties that the SEC can seek. Presently, the SEC may only seek to penalties of $150,000 for individuals and $725,000 for entities--a far cry from the $95 million penalty rejected by Judge Rakoff in the Citigroup settlement. 

Interestingly, on the same day that Judge Rakoff refused to approve the Citigroup settlement, the SEC shot off a letter to key senators asking that the penalties available in APS be raised to $1 million per violation for individuals and $10 million for entities. So maybe the SEC is planning to pursue more APs in the future after all. 

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