Judge Jed S. Rakoff of the Southern District of New York made headlines last December when he rejected a $285 million settlement between the SEC and Citigroup, stating that the commission's failure to require the bank to admit or deny the charges left him unable to determine if the settlement was fair. The decision comes amidst accusations that the SEC needs to be tougher on financial institutions. Our panel of experts discusses the impact of Rakoff's decision, Chinese reverse mergers as well as the U.S. Supreme Court's decisions in Morrison and Janus. They are Joseph Tabacco of Berman DeValerio; Michael Celio of Keker & Van Nest; Jordan Eth of Morrison & Foerster; Michael Torpey and Jim Kramer of Orrick, Herrington & Sutcliffe; and Mary Blasy of Scott + Scott. The roundtable was moderated by California Lawyer and reported by Rick Galten of Barkley Court Reporters.
Moderator: How will Judge Rakoff's decision to reject the SEC's settlement with Citibank change the SEC's approach to cases?
Celio: I'm concerned about individual defendants. If this decision is applied widely, SEC litigation will begin to look a lot more like criminal litigation (S.E.C. v. Citigroup Global Markets Inc., 2011 WL 5903733 (S.D.N.Y)). Individuals will face situations where they forfeit their D&O insurance or their indemnification from their corporate employer if they admit to wrongdoing. This will put pressure on individual defendants to settle cases quickly. It would be ironic if that were the outcome, since Judge Rakoff's decision wasn't about an individual defendant. Citi has the wherewithal to fight, where an individual defendant might not.
The potential for financial ruin is high. As a controller or a corporate vice president, you have had the comfort of knowing that your legal fees will be paid. But if that changes, defendants must take that into account early in the litigation process. You wouldn't spend time testing theories and filing a motion to see how it turns out. It could be similar to a criminal case in that way: There's a binary path where you either settle fast or fight to the end. Our current approach may end if what Judge Rakoff suggests becomes the trend, which has strong implications for the plaintiffs bar.
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Michael Celio handles white collar criminal cases, complex civil litigation, and enforcement actions brought by the U.S. Securities and Exchange Commission or the Department of Justice. An experienced trial lawyer, Mr. Celio has tried more than a dozen cases to verdict in state and federal courts. He has significant expertise defending civil and criminal securities cases, having tried the only two U.S. cases involving allegations of stock-options backdating.