In a letter dated February 1, 2012 to the parties, Judge Rudolph Randa stated that the SEC’s Brief responding to certain questions the Court had raised regarding the language of the proposed settlement with Koss Corporation ("Koss") and Michael Koss "largely satisfies the Court’s concerns." As a result, the SEC will avoid the issues it has faced in the Citigroup litigation, where Judge Jed Rakoff rejected the proposed settlement between the parties and the SEC has appealed. Judge Randa Court accepted the SEC’s offer to revise the judgments to specifically include language from the consent order, and said that, while he continued to question whether the judgments will be final judgments, he "will not withhold … approval based on that concern."

On October 24, 2011, the SEC announced that it had brought a settled action against Koss and Mr. Koss, who were charged failing to adequately maintain internal controls to assure the accuracy and reliability of financial reporting. In settling, Koss and Mr. Koss consented to the entry of an injunctive order without admitting or denying the allegations in the Commission’s complaint. The proposed settlement would enjoin the company and Mr. Koss from future violations and order Mr. Koss to reimburse Koss $242,419 in cash and 160,000 of options pursuant to Section 304 of the Sarbanes-Oxley Act (Mr. Koss had previously voluntarily reimbursed $208,895 in bonuses to Koss).

On December 20, 2011, Judge Rudolph Randa issued a letter directing the SEC to explain why the proposed settlements were "fair, reasonable, adequate, and in the public interest," raising certain specific issues: (1) whether the language regarding to prevent future violations of the federal securities laws was too vague; (2) whether the language of the Consents entered into by Koss and Mr. Koss which were incorporated into the respective judgments was also too vague; (3) whether the proposed final judgment provision regarding disgorgement by Mr. Koss was fair when it did not contain any factual predicate on how it was calculated; and (4) whether the proposed judgments were final judgments because they did not expressly dispose of the claims against the parties.

The SEC responded on January 24, 2012, as discussed here, pointing out that: (1) "the proposed consent judgments are similar in form and substance to consent judgments in Commission enforcement actions entered by district courts in similar cases in this Circuit and elsewhere;" (2) "the consents are tailored to achieve important public policy objectives," but if the Court found it necessary, the SEC would submit revised proposed judgments that contained the language from the Consents; (3) it was not seeking disgorgement from Mr. Koss, but reimbursement under Sarbanes-Oxley Section 304(a) (and the Commission laid out how the amount was calculated); and (4) "so long as the language of the judgment makes clear that the district court is finished with the case, there is no requirement that a judgment contain language specifically disposing of the claims against the parties."

Judge Randa’s one-page letter order today stated that the SEC’s "response largely satisfies the Court’s concerns." With respect to the language from the Consents, the Court the Court noted the Commission’s willingness "to submit revised final judgments to include the consent provisions," and expressed the view that "the revisions of the ‘final judgments’ are necessary to comply with the governing case law of the Court of Appeals for this Circuit. Therefore, the Court accepts the SEC’s offer to revise its proposed final judgments as stated." Judge Randa also stated that he questioned "whether the judgments will be final judgments," he elected not to "withhold … approval based on that concern," and asked the Commission to submit revised documents by February 16, 2012.