The U.S. Court of Appeals for the Second Circuit ruled that a district court judge abused his discretion by not approving an SEC settlement.  The Court ruled that the SEC is entitled to significant deference and that the Court should approve settlements so long as they are fair and reasonable and do not do a disservice to the public interest. The factors that a court should consider include the settlement’s “basic legality,” whether the terms are clear, whether the consent decree reflects a resolution, and whether the agreement is tainted by some sort of improper collusion.  A reviewing judge should not consider the adequacy of the settlement.  The Court stated that the “primary focus…should be on ensuring the consent decree is procedurally proper.”  The Court specifically rejected the District Court’s requirement that the settlement include admissions of liability. 

OUR TAKE: This is the correct decision both as a legal matter and as a policy decision.  The courts should not hamstring the SEC when it wants to settle an enforcement action.  Perhaps, this will make the SEC less insistent on settlements that require admissions of liability.