First, Judge Jed Rakoff blasted the SEC for letting defendants settle cases without admitting or denying guilt. Now, a second judge is taking issue with the language the SEC used in settling a different case.

The second case stems from a settlement the SEC reached with Koss Corp. and its CEO in December to resolve charges that the maker of audio equipment and its executives engaged in accounting fraud to cover up a $30 million embezzlement scheme by Sujata Sachdeva, former vice president of finance at Koss.

Wisconsin federal judge Rudolph Randa took issue with the language the SEC used in the Koss settlement, and issued a letter order directing the SEC to "provide a written factual predicate for why it believes the Court should find that the proposed final judgments are fair, reasonable, adequate, and in the public interest."  

 While Randa did not specifically raise the issue of letting defendants settle cases without “admitting or denying guilt,” as Rakoff had, his objections to the SEC's settlement practices could heap more pressure on the SEC to revisit the language it uses to settle cases. Randa cited Rakoff's objections to the Citigroup Global Markets settlement in his criticism of the Koss settlement.

Randa also requested that the SEC address the adequacy of the its proposed final judgment provision regarding disgorgement by Koss CEO Michael J. Koss.  The judge said that he could not assess the fairness of the provision without more information on how the disgorgement terms were determined.

Last week, the SEC responded to Randa's requests with a memorandum that addressed each of the questions he raised and argued that the proposed settlement with Koss was in the public interest. The Commission wrote that "the court must only find that the judgments are fair, adequate and reasonable," and claimed that the Court should not, as Judge Rakoff suggested, add "a requirement that a reviewing court also find such judgments to be in the public interest."