In 2011, Judge Jed Rakoff, presiding over the U.S. District Court for the Southern District of New York, rejected a $285 million settlement between the Securities and Exchange Commission and Citigroup over the allegedly fraudulent sale of mortgage bonds. On Wednesday, a three-judge panel of the U.S. Court of Appeals for the Second Circuit said Rakoff โ€œabused [his] discretion,โ€ overturned his controversial ruling, and clarified the standards by which other settlements should be reviewed.

Rakoff, at the time, objected to the settlement because the fine was, in his words, โ€œpocket changeโ€ and complained that it allowed the bank to pay the fine without admitting guilt. The settlement was not โ€œfair, reasonable, adequate and in the public interest,โ€ the critic of the SEC’s longstanding โ€œno admit, no denyโ€ policy, said.