Policing Compensatory Relief in Agency Settlements

Abstract

High profile rejections of proposed agency settlements have drawn new attention to judicial review of agency settlements, particularly in the context of the Securities and Exchange Commission. The discussion, however, generally ignores one important function of these settlements: compensation. When an agency acts as “public class counsel” by seeking compensatory relief, it represents two overlapping groups: the public and the injured individuals or entities that are being compensated. This essay argues that, as is the case with private representative actions, protections should be triggered when the rights of absent represented parties to their “day in court” are compromised. This may happen when, for instance, absent “class members” are precluded from bringing other related actions or their potential recovery is limited by the agency’s action. This essay does not propose a wholesale import of private litigation mechanisms to the agency context or suggest that compensation is the sole or primary function of agency settlements. Rather, it provides content for the broad “fair, reasonable, and adequate” standard that judges currently use to review agency settlements, proposing that judicial review of compensatory relief focus on the adequacy of representation.

Keywords: administrative agencies, enforcement, securities and exchange commission, SEC, penalties, preclusion, class action, representative action, agency settlements, consent decrees

JEL Classification: K00, K19, K22, K23