the court does not appear to have considered the agency’s discretionary assessment of its prospects of doing better or worse, or of the optimal allocation of its limited resources.
...
In short, we conclude it is doubtful whether the court gave the obligatory deference to the S.E.C.’s views in deciding that the settlement was not in the public interest.
Finally, we question the district court’s apparent view that the public interest is disserved by an agency settlement that does not require the defendant’s admission of liability. Requiring such an admission would in most cases undermine any chance for compromise.
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We doubt that a court’s discretion extends to refusing to allow such a litigant to reach a voluntary settlement in which it gives up things of value without admitting liability.
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A settlement is by definition a compromise. We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.
...
We have no reason to doubt the S.E.C.’s representation that the settlement it reached is in the public interest. We see no bases for any contention that the S.E.C.’s decision to enter into the settlement was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
See some of my previous posts on consent orders: Consent Orders: Bombay High Court and Smoke without fire
4 comments:
The Court here has not issued any final ruling on merits. It only stayed Rakoff's ruling as, according to it, the movant has shown a `likelihood of success'. Also, since there was nobody to argue Rakoff's view, the principles of adversarial proceedings have not been strictly followed. Therefore, The Clerk of the Court has been directed to appoint counsel, who will advocate for upholding the district court's order.
New York to abhi door hai!
Very true. But the observations are significant nonetheless.
Well, I posted the earlier anonymous comment. Technicalities aside, I think there are a few genuine issues regarding the widespread use of consent orders in the area of securities law.
This mechanism makes eminent sense in private law. In a private dispute, it may be rational for the aggrieved party not to pursue any civil or criminal proceeding against the wrongdoer and extract an admission of guilt, since it is costly and time consuming. At the end of the day, the party will be better off provided the wrongdoer agrees to pay damages for the losses suffered. However, I feel that securities law today partakes of many characteristics of public law – the regulators are charged with the task of ensuring market integrity, protecting investors and promote capital formation. In this context, the dispute cannot merely be treated as a dispute between the SEC / SEBI and the regulated entity.
The issue of `regulatory capture’ is widely discussed in recent securities law literature, whereby the regulated entities, due to their size and financial clout, are able to capture and dictate regulatory processes. This becomes even worse in the context of (again widely discussed) issue of the `revolving door’ between the regulators and the securities industry. Serious conflict of interest issues could arise if the Courts blindly defer to the consent decrees hammered out by these regulators.
In the last few years, the SEC has gone particularly aggressive on two issues – insider trading and FCPA violations. This is surprising since the policy rationale behind the insider trading prohibition remains unclear, and there is a big question mark as to why the SEC should get involved in an essentially anti-bribery law. I think this is due to the fact there is popular outrage against insider trading and corruption, and the SEC capitalizes on that to bolster its public image (particularly post Madoff!). On the other hand, relatively few people are familiar with the exotic world of derivatives and structured products, and the SEC has wide leeway in hammering out settlements with Goldman Sachs and Citigroup, without any fear of public backlash.
I don’t deny that there are certain benefits of getting a settlement with no admission of guilt. My attempt is to present the `other side’ of the story.
-Mangesh Patwardhan
Yes, the observations are very much relevant.
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