As I noted here in November, Judge Rakoff's order rejecting the SEC's proposed settlement with Citigroup attacked some fundamental practices of the Enforcement division, and left the agency with only a couple, unattractive options. These options included appealing the judge's decision or considering a move to a model of bringing more cases as administrative proceedings, which do not require the approval of a federal court. 

Today, the SEC announced that it has filed papers seeking appellate review of the decision in the U.S. Court of Appeals for the Second Circuit. In a statement today, Enforcement Director Robert Khuzami said that the agency believes Judge Rakoff erroneously applied a "new and unprecedented standard" in "requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment." Khuzami said that for decades, courts have upheld similar settlements by federal and state agencies.

Khuzami added that other factors weigh in favor of the type of "no admit, no deny" settlement proposed by the SEC in the Citigroup case:

it puts money back "in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount;" and

settling cases instead of litigating reduces the number of other frauds that "might never be investigated or be investigated more slowly because limited agency resources are tied up in litigating a case that could have been resolved."

Finally, he said, the proposed $285 million settlement with Citigroup "represents most of the total monetary recovery that the SEC itself could have sought at trial" and in no way limited the ability of injured investors to pursue their own claims for additional relief.

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