Judge John L. Kane of the United States District Court for the District of Colorado is uninterested in oxymoronic gimmicks, that much is clear. In a fiery April 24, 2014 opinion, Judge Kane rejected settlements between the SEC and two individual defendants in an insider trading case. Judge Kane evoked—both in style and via explicit citation—Judge Jed Rakoff’s well-known rejection of the proposed settlement in SEC v. Citigroup Global Markets and similarly rejected the proposed settlements because they included numerous “provisions and recitations that [he would] not endorse.”
Judge Kane’s ire was focused on the SEC’s proposed settlement with Michael Van Gilder, the individual who allegedly traded based on inside information in advance of a high-stakes acquisition and tipped friends and family in an email titled “Xmas present.” The SEC’s proposed settlement with Van Gilder included a permanent injunction prohibiting future violations of Section 10(b) or Rule 10b-5, a $109,265 disgorgement payment (credited in part by a payment already made in a parallel criminal proceeding), and another $109,265 in civil penalties. The proposal included a number of standard provisions for SEC settlements, including a waiver of the entry of findings of fact and conclusions of law, a waiver of the right to appeal from the entry of final judgment, “a statement that Van Gilder neither admits nor denies the allegations of the Complaint,” and enjoining Van Gilder from future violations of existing statutory law. Judge Kane decisively rejected each of these in turn.
Regarding the waiver of findings of fact and conclusions of law, Judge Kane found this “directly contrary to” Federal Rule of Civil Procedure 52. Amongst his numerous protestations was the question: “if trial judges do not have to make findings and conclusions, what incentive do they have to exercise care in ascertaining and applying the facts?” The answer, according to Judge Kane, is that judicial approval would be “relegated to a mindless formalism and transparency is rendered void.”
Next up was the waiver of the right to appeal, of which Judge Kane was equally fond. He referred to it as a “gimmick” and suggested that it may be unconstitutional. In his words, “[a] waiver of the right to appeal instituted by an executive branch agency is an affront to the very basis of judicial independence.”
Echoes of Judge Rakoff permeated the discussion of the “neither admit nor deny” aspect of the proposed settlement. The opinion cites Judge Rakoff’s reasoning in Citigroup that “without any admission by the defendant, the court lacked the factual predicate necessary to determine whether the proposed settlement” was fair and in the public interest and concludes that “[w]ithout knowing the context and circumstances of a case, it is not possible to apply rules and principles of law . . . [and] it is impossible for the public to know what the judge is doing and why the particular decision is reached.”
Finally Judge Kane also bluntly observed that “[e]njoining that which the law already prohibits is oxymoronic” and held that the proposed injunction against future violations of the securities laws was “gratuitous and without legal effect” and “will not be in any judgment entered with my imprimatur.”
This blog has previously covered impacts of the Citigroup opinion on SEC settlements and judicial review thereof. Van Gilder is the latest in a string of developments showing that the ball that began rolling with Judge Rakoff’s opinion in Citigroup continues to gain momentum. Indeed, Van Gilder gives that ball another good kick by rebuffing additional elements of standard consent filings in SEC settlements such as the waiver of appellate rights. If these views gain traction in the federal judiciary, it could fundamentally alter the settlement dynamic in SEC cases.