Securities & Exchange Commission v. Cioffi
2012 U.S. Dist. LEXIS 84195
E.D.N.Y2012Background
- Settlement in a SEC enforcement action requires court approval under Barcia v. Sitkin.
- Bear Stearns’ two hedge funds led to criminal indictments of managers Cioffi and Tannin in 2008; they were acquitted in 2009, but civil action remained.
- February 13, 2012 the parties presented a settlement with disgorgement/penalties totaling $800k (Cioffi) and $250k (Tannin); court called the amounts “chump change.”
- SEC’s enforcement theory: disgorgement and penalties with injunctive relief and administrative bar orders; private investors’ losses far exceed possible recovery, highlighting limits on SEC remedies.
- Court must decide whether to approve consent judgments given limitations on SEC authority to recover investor losses and the need to balance enforcement goals with the public interest.
- Court accepts the consent judgments as fair, reasonable, and adequate within the SEC’s statutory constraints, while urging Congress to consider expanding the SEC’s powers to better aid victims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for SEC consent judgments | SEC advocates deference to negotiated terms | Rakoff-style scrutiny may be needed due to injunctive relief | Standard favorable to approval; arm's-length negotiation suffices |
| Whether the proposed consent judgments are fair, reasonable, adequate, and in the public interest | Settlement reflects fair compromise given facts and risks | Public interest requires careful weighing of liability and remedies | Yes; judgments meet the four-factor standard (with public interest considerations) |
| Impact of no admission of liability on approval | Admitting liability not required for settlement | Admission could better serve public interest | Approval permitted without admission of liability |
| SEC authority to disgorge and impose penalties and distribution to victims | Disgorgement/penalties are proper, but limited by statute | Recovery may be too small to reflect investor losses | Authority acknowledged but limited; settlement appropriate given statutory constraints |
| Public policy and congressional reform opportunities | Stronger remedies could better compensate investors | Current framework constrains SEC actions | Court urges legislative expansion to aid investors (not a ruling on remedy in this action) |
Key Cases Cited
- Barcia v. Sitkin, 367 F.3d 87 (2d Cir. 2004) (consent decree defined; court approval necessary)
- SEC v. Citigroup Global Mkts., Inc., 827 F.Supp.2d 328 (S.D.N.Y. 2011) (debated standard of review for consent judgments; public interest consideration in settlements)
- Bank of Am. Corp., 653 F.Supp.2d 507 (S.D.N.Y. 2009) (injunctions/settlements in SEC enforcement; public-interest considerations)
- SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) (disgorgement as equitable remedy; investor restitution themes)
- Fischbach Corp., 133 F.3d 170 (2d Cir. 1997) (disgorgement as deterrence; secondary goal is investor relief)
- WorldCom, Inc. v. SEC, 467 F.3d 73 (2d Cir. 2006) (penalties and disgorgement; civil remedies under Sarbanes-Oxley)
- SEC v. Joiner Leasing Corp., 320 U.S. 344 (1943) (preponderance standard guidance in civil enforcement)