United States Securities & Exchange Commission v. Citigroup Global Markets, Inc.
752 F.3d 285
| 2d Cir. | 2014Background
- The S.E.C. sued Citigroup alleging it misrepresented its role in structuring/marketing Class V Funding III and selected assets while taking short positions, profiting about $160M while investors lost millions.
- S.E.C. and Citigroup submitted a proposed consent judgment: permanent injunction (Sections 17(a)(2),(3)), $160M disgorgement, $30M prejudgment interest, $95M civil penalty, three years of internal compliance measures; Citigroup neither admitted nor denied liability.
- District court (Rakoff, J.) refused to approve the consent decree, demanding more factual proof of the S.E.C.’s allegations and questioning the adequacy and public-interest justification for injunctions without admissions or trial; it consolidated the related individual action and set a trial date.
- S.E.C. and Citigroup appealed; the Second Circuit stayed the district court’s order and considered whether the district court applied the correct legal standard in reviewing the consent decree.
- The Second Circuit held the district court abused its discretion by imposing an improper requirement that the S.E.C. prove the ‘‘truth’’ of its allegations (or obtain admissions) before approving a consent decree and remanded for reconsideration under the correct standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate jurisdiction over interlocutory denial of consent decree | S.E.C.: §1292(a)(1) permits appeal because denial effectively refuses injunction and causes irreparable harm | District court: denial not immediately appealable; interlocutory appeal improper | Court: §1292(a)(1) jurisdiction exists here — appealable because decree included injunctive relief and denial risked irreparable harm |
| Admission of liability as condition for approval | S.E.C.: consent decree without admission is acceptable to resolve matter | Citigroup: agreed to settle without admission; district court sought admission | Court: district court cannot require admission; whether to obtain one is S.E.C.’s decision |
| Proper standard/deference for reviewing agency consent decrees | S.E.C.: courts should give substantial deference; review for fairness and reasonableness, and public interest when injunctions are included | District court: must ensure decree is ‘‘fair, reasonable, adequate, and in the public interest’’ and may require proof of allegations | Court: proper standard is whether decree is fair and reasonable; when injunctive relief is included, also ensure public interest would not be disserved; ‘‘adequacy’’ (class-settlement concept) omitted |
| Requirement that S.E.C. prove allegations/truth before approval | S.E.C.: settlement is pragmatic; court need not adjudicate truth; record of factual allegations can suffice | District court: required ‘‘cold, hard, solid facts’’ or admissions to justify injunction backed by contempt | Court: district court abused discretion; cannot demand proof of truth or admissions as condition for approval; court should ensure a sufficient factual basis and guard against collusion, but not substitute its policy judgments for the agency’s |
Key Cases Cited
- S.E.C. v. Wang, 944 F.2d 80 (2d Cir. 1991) (federal policy favors approval/enforcement of consent decrees)
- Carson v. Am. Brands Inc., 450 U.S. 79 (1981) (narrow standard for interlocutory appeals under §1292(a)(1) — irreparable consequences required)
- New York v. Dairylea Cooperative, Inc., 698 F.2d 567 (2d Cir. 1983) (refusing broad application of Carson to every settlement with an injunctive clause)
- eBay Inc. v. MercExchange, 547 U.S. 388 (2006) (four-factor equitable injunction test including public-interest consideration)
- Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 (1984) (deference to agency policy judgments)
- United States v. ITT Continental Baking Co., 420 U.S. 223 (1975) (consent decrees are pragmatic compromises)
- United States v. Armour & Co., 402 U.S. 673 (1971) (consent decrees construed as written; not re-written as if litigated)
- S.E.C. v. Randolph, 736 F.2d 525 (9th Cir. 1984) (consent decrees should be approved unless unfair, inadequate, or unreasonable)