In an opinion filed today, Judge Marrero conditionally approved a $614 million insider trading settlement between the SEC and SAC Capital — the largest insider trading settlement ever (see our prior post). The approval is contingent on a ruling from the Second Circuit that raises similar questions of whether and when it is appropriate for courts to approve SEC settlements in which the defendants neither admit nor deny wrongdoing. Judge Marrero seemed to indicate, however, his view that the practice may not be appropriate in all cases:
If courts traditionally have not challenged the inclusion of “neither admit nor deny” provisions in civil enforcement actions, perhaps this outcome has obtained because fitting circumstances have not previously arisen that would compellingly justify that level of judicial intervention. It should come as no surprise that judges called upon routinely to resolve cases of the domestic “cats and dogs” variety would take special note when the elephant is first dragged into the courtroom. . . . [I]nstances can and do arise in which courts should properly raise the level of scrutiny they accord to particular settlement agreements in particular situations. Earlier precedents may not have entailed the extreme disparity evident in recent cases between the size and speed of a settlement on the one hand, and the plausibility of an absence of wrongdoing on the other. Perhaps we live in a different era. In this when the notion labeled “too big to fail” (or jail, as the case may be) has gained currency throughout commercial markets, some cynics read the concept as code words meant as encouragement by an accommodating public a free pass to evade or ignore the rules, a wink and a nod as cover for grand fraud, a license to deceive unsuspecting customers. Perhaps, too, in these modern times, new financial industrial, and legal patterns have merged that call for enhanced regulatory and, as appropriate, judicial oversight to counter these sinister attitudes. This prospect raises concerns about whether the regulatory and judicial practices which have governed to date fail to reflect what new realities demand to adequately protect the public interest. Anyone who even superficially follows accounts of current events entailing well-known scandals — for instance those involving extensive fraud or excess in the financial markets, environmental disasters, and hazardous consumer products — is likely to be impressed by a quality many of these events share: massive scale whose effects go well beyond mere matters of degree. . . . In this Court’s view, it is both counterintuitive and incongruous for defendants in this SEC enforcement action to agree to settle a case for over $600 million that would cost a fraction of that amount, say $1 million, to litigate, while simultaneously declining to admit the allegations asserted against it by the SEC. An outside observer viewing these facts could readily conclude that [the defendants] essentially folded, in exchange for the SEC’s concession enabling them to admit no wrongdoing.