| NEW YORK
NEW YORK Jan 30 A federal judge who has
questioned the U.S. Securities and Exchange Commission's
practice of settling cases without admissions of wrongdoing is
raising concerns about a proposed agreement over insider trading
in H.J. Heinz Co.
Concerns voiced by U.S. District Judge Jed Rakoff were
detailed by the SEC in a court filing in New York federal court
Thursday as it seeks approval of a $5 million settlement with
two brothers from Brazil.
The SEC said that in November, Rakoff questioned the
agency's decision to allow the brothers to settle while neither
admitting nor denying the charges. Despite a revision to the
settlement, the judge has continued to raise issues, the SEC
The dispute, which has not been previously reported, came
despite a new settlement policy ushered in by SEC Chair Mary Jo
White in June that would require defendants in some cases to
make admissions, in contrast to letting them resolve lawsuits
without admitting or denying the charges.
The shift followed a public debate over the practice
prompted in large part by Rakoff, who in 2011 refused to approve
the SEC's $285 million financial crisis-related settlement with
Rakoff at the time said he had no way to know if the accord
was in the public interest. The SEC is awaiting a decision by
2nd U.S. Circuit Court of Appeals in New York on whether it will
reverse the judge.
The commission's latest run-in with Rakoff came in lawsuit
filed in February 2013 initially against unknown traders in H.K.
Heinz over suspicious trades ahead of the announcement that the
ketchup maker would be acquired for $23 billion by Warren
Buffett's Berkshire Hathaway Inc and Brazil's 3G
In October, the SEC filed an amended complaint while
simultaneously settling with the two brothers in Brazil now
named in the case, Michel Terpins and Rodrigo
The SEC said the brothers had used a family-owned Cayman
Islands entity called Alpine Swift to buy $90,000 in options
positions a day before the takeover was announced.
After the deal became public, the positions' jumped in value
by 2000 percent, the SEC said.
As part of the settlement, the Terpins agreed to forfeit all
$1.81 million in profits made from trading Heinz options and
also pay $3 million in penalties.
Neither brother admitted nor denied the charges as part of
the settlement as initially drafted.
No transcripts exist of the calls between Rakoff and the
parties where the SEC said he raised his concerns. But from the
start, Rakoff's only concern was the inclusion of the no-admit,
no-deny language, the SEC said.
The SEC said that after further negotiations, it submitted
on Dec. 26 revised proposed consent judgments for Rakoff's
approval that dropped the language. But the proposed judgments
contained clauses that made clear that the lack of the language
didn't constitute an admission, the SEC said.
Rakoff on a Dec. 31 call expressed continued concerns and
gave the parties three options, the SEC said: remove the new
clauses, require the brothers to admit to the allegations for
the limited purpose of the proceedings, or have an evidentiary
On a call that followed on Jan. 9, Rakoff ordered the SEC to
submit a court filing providing the evidence supporting its
claims. Rakoff had required a similar filing in the Citigroup
case as well.
In Thursday's filing, which provided that evidence, the SEC
said the settlements with the brothers "reflect a fair,
adequate, and reasonable resolution of this matter."
Dwight Bostwick, a lawyer for Michel Terpins, declined
comment. A lawyer for Rodrigo Terpins did not respond to a
request for comment. A spokesman for the SEC also declined
The case is Securities and Exchange Commission v. Certain
Unknown Traders in the Securities of H.J. Heinz Co, U.S.
District Court, Southern District of New York, No. 13-01080.