Back in 2011, Judge Rakoff famously delivered a blistering indictment of the SEC's enforcement tactics when he rejected the SEC's settlement with Citigroup over a CDO alleged to have been designed to fail. 

The decision was immediately appealed (and ultimately reversed), but was pending before the Second Circuit for over two years.  During that time, other district judges followed Rakoff's lead, scrutinizing the SEC's settlements more closely.

Judge Rakoff's criticism was incredibly influential, or perhaps just captured a zeitgeist regarding the lack of serious sanctions against large financial institutions in the wake of the mortgage crisis – the SEC even announced it would revise its "no admit-no deny" settlement policy as a result.

After the Second Circuit reversed Judge Rakoff, he reluctantly approved the Citigroup settlement – but with a footnote warning (1) that the SEC would simply bring more cases administratively to avoid any court review at all, and (2) that such administrative decisions might be unconstitutional.  

Judge Rakoff seems a bit prescient in that respect, because the SEC has openly stated it plans to bring more administrative cases – and the data shows that's apparently a smart move, since its administrative judges, at least recently, deliver victories to the Commission 100% of the time.  (I can't tell whether the data controlled for the types of cases likely to be brought administratively versus in court).  Meanwhile, Judge Rakoff has continued to criticize the SEC – most recently in a speech lamenting the trend toward administrative trials, in part because federal appellate review is deferential.

And many of the "new" defendants are fighting back with challenges to the constitutionality of the SEC's administrative forum.

Most recently, Justice Scalia, joined by Justice Thomas, penned a statement respecting a denial of certiorari in an insider trading case, in which he openly challenged the notion that the SEC may administratively interpret a statute in a manner that deserves deference from courts enforcing the crininal laws.  That argument may be a bit far afield from Judge Rakoff's legally, but the policy concerns are similar – Judge Rakoff, too, extolled the virtues of having a federal court oversee the agency's conduct and guide the development of the law.

(One can't help but notice that this argument seems to have no purchase when private plaintiffs make it in reaction to boilerplate arbitration agreements concerning statutory claims.  But I digress.)

To be sure, there are obvious distinctions between these issues.  After all, the SEC's decision to bring cases administratively may just be a function of new powers granted to it after Dodd-Frank, and may not reflect any desire to avoid scrutiny by judges like Rakoff.  Moreover, the new administrative cases do not concern mortgage-misconduct or even the misconduct of big banks – many involve insider trading, like the case that inspired Justice Scalia's statement.  Finally, Justice Scalia's statement goes well beyond the SEC, and could potentially extend to many administrative agencies. 

Nonetheless, it's very hard not to suspect that Rakoff and other judges of his ilk play some role in the SEC's calculus when deciding where to prosecute a case.  And the throughline of all of this, for me, is that the criticisms of the SEC all look like variations on the ongoing accusation that the SEC (and federal prosecutors) prefer easy wins in insider trading cases to aggressive policing of large financial institutions.  (It is, in a way, the same debate that is dividing the Commission right now regarding penalties to be imposed on Bank of America for crisis-related misconduct.)  Judge Janice Rogers Brown on the DC Circuit just yesterday delievered a similar attack on the SEC, writing that more accountability and openness is required because "Financial institutions and their regulators now frequently operate under a haze of public distrust fueled by repeated regulatory failures and massive, opaque and unaccountable bailouts.  The public now has good reason to doubt the rigor of our financial systems’ reliability and oversight."

So I can't help but wonder how much Judge Rakoff's attack in 2011 is continuing to reverberate throughout the system.

I also have to say, the questions posed in the Scalia opinion are fascinating.  There has long been a palpable tension in courts' interpretation of Section 10(b) between their desire to narrow the statute for private claims, and their desire to broaden it for SEC claims.  In Stoneridge Investment Partners v. Scientific-Atlanta (2008), for example, the Supreme Court dismissed the plaintiffs' Section 10(b) claims by focusing on the element of reliance – applicable in private actions but not SEC actions – which set up a significant divide between the types of conduct that can form the basis of private actions, versus the types of conduct the SEC can target.  The Fourth Circuit then started on a path of interpreting the statute differently for criminal claims (one suspects because it was really trying to distinguish government from private, rather than civil from criminal). 

If Justice Scalia's argument wins the day, will we see a proliferation of interpretations of 10(b) – public civil, criminal, and private?