Deference Required in Evaluating Proposed Consent Decrees

In the long-awaited decision of S.E.C. v. Citigroup Global Markets, Inc. (2014 U.S. App. LEXIS 10516), the Second Circuit reversed the district court’s refusal to give deference to the S.E.C. and approve a consent decree proposed by the parties. In 2011, the S.E.C. filed a complaint against Citigroup alleging violations of §§17(a)(2) and (3) of the Securities Act, which was followed shortly after by a proposed consent decree. The decree included an injunction against future violations of 17(a)(2) and (3), profit disgorgement, prejudgment interest, and a civil penalty; the decree did not require Citigroup to admit guilt or liability. The district court declined to approve the decree, holding that it was “neither fair, nor reasonable, nor adequate, nor in the public interest.” The court then set a date for trial that both parties immediately appealed.

After finding jurisdiction under 28 U.S.C. §1292(a)(1) the Second Circuit reversed and remanded. The court clarified the standard for review as, “whether the proposed consent decree is fair and reasonable, [and that] the public interest would not be disserved.” By requiring that the consent decree be adequate, the district court applied the wrong standard. The Second Circuit listed the factors for evaluating the fairness and reasonableness of a consent decree and stressed that the inquiry should focus on correct procedures while giving deference to the decision by the S.E.C. Citing Chevron, the court reiterated that "determining whether the proposed decree best serves the public interest…rests squarely with the S.E.C., and...merits significant deference." In finding the public interest disserved, the district court abused its discretion.