Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, February 21, 2010

Judge Rakoff Defers Approval of Proposed Settlement in SEC v. Collins

You may recall that on Jan. 14, 2010, Joseph Collins, former partner at Mayer Brown, was sentenced to 7 years in prison for his role in helping his client Refco defraud investors.  (Collins is appealing his conviction.)  Judge Patterson at that time deferred determination of what amount, if any, in restitution Collins should pay.

Meanwhile, Judge Rakoff is deciding whether to approve a proposed settlement in an SEC enforcement action related to the same conduct.  In a Feb. 16, 2010 order (Download SEC_V_Collins_Order ) the judge stated he would defer his decision until after Judge Patterson decided the restitution issue.  What is interesting about this order -- apart from another example of Judge Rakoff's activism in reviewing proposed SEC settlements -- is that the SEC argued that imposition of a penalty would not be appropriate since it could not be distributed to victims under the Fair Fund provision of SOX.  (Plaintiffs' counsel in a class action argued to the contrary.)  This raises two important issues:  First, why couldn't the penalty be distributed to investors under the Fair Funds provision?  This has become a common practice in recent enforcement actions.  Second, when was the purpose of civil penalties, whose original justification was to punish, transformed into a compensatory measure?  The SEC's letter making its argument was not attached to the judge's order, but I would be interested in reading an explanation of its thinking.

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