## Facts

- The SEC filed a civil enforcement action against Citigroup Global Markets, Inc. arising from the structuring and marketing of a collateralized debt obligation tied to the housing market.
- The SEC alleged Citigroup marketed the CDO as selected by an independent adviser while Citigroup played a significant role in asset selection, then took a short position against the assets.
- The SEC charged negligence-based violations of the Securities Act of 1933 and, at filing, submitted a proposed consent judgment resolving the action.
- The proposed consent judgment permanently enjoined specified securities-law violations and required disgorgement, prejudgment interest, and a civil penalty totaling $285 million.
- The settlement followed a “no-admit-no-deny” approach: Citigroup neither admitted nor denied the allegations.
- The district court refused to approve the consent judgment, concluding it could not determine the settlement was fair, reasonable, adequate, and in the public interest without factual admissions or a developed evidentiary record, and questioned the SEC’s charging and penalty choices.
- The SEC appealed and Citigroup cross-appealed; the Second Circuit stayed the district court’s order and granted interlocutory review.

## Issues

1. What standard governs a district court’s approval of an SEC consent judgment in an enforcement action, including a settlement without admissions of liability?
2. May a district court require factual admissions or a trial-like evidentiary record as a condition of approving an SEC consent judgment?
3. To what extent may a district court reject an SEC settlement based on disagreement with the SEC’s charging decisions or assessment of remedies and penalties?

## Decision

- The Second Circuit vacated the order refusing to approve the consent judgment and remanded for reconsideration under a narrower standard.
- The court held the district court applied an incorrect, overly intrusive test by effectively demanding proof of the allegations and evaluating “adequacy” as if assessing the best possible outcome.
- The proper inquiry is whether the consent judgment is fair and reasonable—i.e., lawful, clear, within the court’s jurisdiction, within the general scope of the pleadings, and not the product of collusion or corruption—and whether it serves the public interest with substantial deference to the SEC’s determination.
- The court rejected conditioning approval on admissions of liability or a detailed evidentiary record, recognizing settlements as pragmatic resolutions distinct from adjudicating truth at trial.
- On remand, the district court approved the consent judgment under the Second Circuit’s stated standard.

## Legal Principles

- Judicial review of SEC consent judgments is limited and procedurally focused; the court is not to decide whether the settlement is the optimal or most punitive resolution.
- A consent judgment is “fair and reasonable” when it is lawful, clear, within the court’s jurisdiction, resolves the dispute framed by the pleadings, advances the statute’s objectives, and is free from collusion or corruption.
- The SEC’s assessment of the public interest in settling enforcement actions is entitled to substantial deference; courts should not substitute their policy judgments for the agency’s.
- District courts generally may not require admissions of liability or trial-level proof to approve an SEC consent judgment; the complaint, counsel representations, and decree structure can supply a sufficient basis for review.
- Courts should not use settlement review to second-guess the SEC’s charging choices (e.g., negligence versus fraud) or negotiate remedy amounts as if acting as a super-regulator.

## Conclusion

The Second Circuit limited district-court scrutiny of SEC consent decrees to whether the proposed judgment is fair, reasonable, lawful, and non-collusive, and required substantial deference to the SEC’s public-interest judgment, making it error to reject settlement approval based on demands for admissions, extensive proof, or disagreement with the SEC’s enforcement choices.


S.E.C. v. Citigroup Glob. Mkts., Inc., 752 F.3d 285 (2d Cir. 2014)