Securities Law Prof Blog

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

Saturday, December 31, 2011

Judge Rakoff's Supplemental Order in Citigroup

On December 29 Judge Rakoff issued a supplemental order to its December 27 order denying the SEC's request for a stay pending interlocutory appeal.  Almost simultaneously with the Judge's issuance of the first order, the Second Circuit granted the agency's request for a stay.   In the supplemental order Judge Rakoff expresses his displeasure with the SEC's conduct in filing the emergency motion, charging it with misleading both the appellate court and the district court.(Download Dist Ct Sup Order Dec 27 2011)

Specifically, Judge Rakoff says that the SEC, in its "emergency motion" to the Second Circuit, exaggerated the urgency of the request.  The SEC stated that Citigroup had only until January 3, 2012 to file an answer or to move to dismiss the complaint and this deadline interfered with a central provision of the negotiated settlement -- that Citigroup would not deny the SEC's allegations.  Judge Rakoff stated that this statement was misleading because, among other things, the SEC knew that Citigroup planned to file a motion to dismiss which would not constitute a denial of the allegations.  In addition, the parties had not argued before the district court that January 3 was a critical date.

With respect to misleading the district court: according to Judge Rakoff, the SEC and Citigroup had a telephone conference with the Judge at 3 p.m. on December 27 without informing him that the SEC had previously filed the emergency motion with the Second Circuit.  About an hour later, the Second Circuit granted the request to stay and the district court issued its order denying the stay.  Perturbed by these developments, Judge Rakoff issued the supplemental order both to inform the appellate court and to admonish the parties to be more forthcoming. 

Judge Rakoff's order illustrates an interesting wrinkle in this appeal.  Since both the SEC and Citigroup want the district court to approve the settlement, there is no party in this litigation to present the arguments, first, that there is no basis for an interlocutory appeal, and, second, the argument on the merits: that the district court acted within its authority in refusing to approve the settlement.  Clearly Judge Rakoff is concerned that the appellate court is operating with incomplete and one-sided information.  Who speaks for the district court?

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