LOS ANGELES – DECEMBER 19, 2011 – Arent Fox partner Stephen G. Larson, formerly a judge with the US District Court for the Central District of California, was quoted in the December 19, 2011 edition of The Wall Street Journal’s “Law Blog” discussing the US Securities and Exchange Commission’s recent announcement that the agency was appealing a November 28 decision by US District Judge Jed S. Rakoff rejecting a $285 million settlement between Citigroup and the SEC.

The SEC announced on December 15 that it had filed an appeal of Judge Rakoff’s decision with the US Court of Appeals for the Second Circuit. In announcing the appeal, SEC enforcement chief Robert Khuzami said Judge Rakoff had committed ”legal error by announcing a new and unprecedented standard that inadvertently harms investors.”

Judge Rakoff rejected the consent judgment in a 15-page decision issued November 28, writing the settlement “is neither fair, nor reasonable, nor adequate, nor in the public interest.”

When asked by The Wall Street Journal about the significance of Judge Rakoff’s decision and the SEC’s subsequent filing of an appeal, Judge Larson said:

The Court’s recent decision rejecting the proposed settlement reached by the Securities and Exchange Commission and Citigroup Global Markets, Inc. is both understandable but also potentially problematic. There is no question that there are a number of reforms that the SEC needs to undertake to update its decades-old settlement protocol, and the court does well in identifying those issues.

My sense, however, is that, as a matter of public policy, such issues are for the most part better resolved by the political process than through the courts. The court’s obligation is to determine the propriety of the proposed settlement in the particular case before it, and that obligation is stretched when the court weighs considerations such as how the failure of the SEC to secure an admission of liability from Citigroup in this case portends for later, hypothetical cases.

At the same time, while courts should be deciding cases on the facts before them and not the policy considerations of how well or how properly an agency is being managed, I certainly understand the frustration of the court over what it apparently perceives as persistent and systemic problems at the SEC, as well as the extent to which the SEC is effectively (or ineffectively) fulfilling its mandate through settlements such as the one at issue in this case.

Those same concerns, however, are most certainly a proper subject for congressional oversight, and I would not be surprised to see this case serve as a springboard for additional funding of the SEC by Congress, perhaps precisely the objective Judge Rakoff was seeking.

To read the entire Wall Street Journal Law Blog article, please click here.

To read the full statement issued by the SEC’s Director of the Division of Enforcement, please click here.

To read the SEC’s Notice of Appeal filed with the Second Circuit, please click here.