I've been skeptical that the sort of intrusive review Judge Rakoff gave the proposed SEC--Citigroup settlement would become commonplace. As one reporter summed up my comments about Rakoff:
"He's signalled for a while that he's not going to play ball with the usual process," said UCLA law professor Stephen M. Bainbridge.
As newsworthy as the judge's Citigroup opinion is, "I don't think this in any way indicates the SEC is going to have problems with other judges," Mr. Bainbridge said.
As a practical matter, the SEC does not have the budget or staff to bring every case to trial. So it settles many of them, trying to get the most justice it can by settling rather than rolling the dice on a long, costly trial against an adversary with superior funding.
Settlements also appeal to judges. If the parties to one of the dozens of cases on their docket "want to make one of those cases go away, judges are pretty happy," Mr. Bainbridge said.
Judge Rakoff, he added, "obviously doesn't mind the extra workload."
I still think that analysis is basically right and that Rakoff will remain an outlier. But he's no longer all alone out on the far fringe of the judicial spectrum:
U.S. District Judge Rudolph Randa ... has asked the SEC to show why its proposed settlement with headphone maker Koss Corp. and its chief executive are “fair, reasonable, adequate, and in the public interest.” The judge asked for more information from the SEC, saying he has concerns about issuing a vague order banning future securities violations.
The SEC has accused Koss of preparing inaccurate financial statements, books and records, and lacking adequate financial controls from fiscal 2005 through 2009.
Randa also asked the agency for a “written factual predicate” addressing the adequacy of proposed disgorgement by Koss.
The settlement says Koss will be required to reimburse the company for $242,419 in cash and 160,000 of options. The bonus reimbursement, along with $208,895 in a previous reimbursement, covers his incentive bonuses from 2008, 2009 and 2010, according to the SEC.
“Without any factual predicate for how those disgorgement terms were determined and what more, if anything, could have been subject to disgorgement, the Court cannot assess their fairness,” Randa wrote.
As support for his request, Judge Randa cited -- you will have guessed it -- Rakoff's Citigroup decision.
I'll still be surprised if this becomes a trend instead of the judicial equivalent of the flavor of the month. But you never know.