It's not exactly an epidemic, but a federal judge in Colorado appears to have caught Rakoff fever.

Two weeks before the 2nd Circuit Court of Appeals will hear oral arguments on whether U.S. Senior District Judge Jed Rakoff exceeded his authority when he rejected the Securities and Exchange Commission's $285 million settlement with Citigroup, U.S. Senior District Judge John Kane of Denver has refused to approve the SEC's proposed $12 million "neither admit nor deny" settlement with Bridge Premium Financial and a former Bridge executive accused of running a Ponzi scheme. In a one-paragraph order last week, Kane said he would not approve a deal in which the defendant "remains defiantly mute" about the truth of the SEC's allegations. "A defendant's options in this regard are binary: He may admit the allegation or he may go to trial," Kane wrote. The judge also said he would not consent to any final judgment without an entry of findings of fact and conclusions of law. "These findings are important to inform the public and the appellate courts," he said.

The ruling seems to represent a change of heart for Kane, who in 2011 approved the SEC's $4 million settlement with investment advisor Neal Greenberg, even though that deal did not require Greenberg to admit or deny the agency's allegations.

When Rakoff refused to approve the Citi deal, which involved the bank's alleged misrepresentations to investors in a complex, mortgage-backed derivative instrument, he said the SEC's settlement policy does not serve the public interest. "The court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance," the judge wrote in November 2011 in a now famous 15-page opinion.

The SEC and Citi jointly appealed Rakoff's ruling to the 2nd Circuit, which gave a pretty clear hint of its stance on deference to the SEC in a per curiam ruling last March that concluded Rakoff erred when he refused to stay the Citi case during the appeal. On Feb. 8, a different three-judge panel at the 2nd Circuit will hear the merits of the underlying joint appeal, with Rusty Wing of Lankler Siffert & Wohl arguing for Rakoff. (The judges on the Feb. 8 panel have not yet been announced.)

Rakoff is the most outspoken judicial critic of the SEC's neither-admit-nor-deny boilerplate, which the agency says it needs in order to extract settlements from defendants concerned about follow-on liability in private suits. Every government agency with enforcement powers, as SEC officials have said many times, uses similar language in consent decrees. Despite the SEC's explanations, Rakoff first challenged the policy in 2009, when he rejected a $33 million settlement between the agency and Bank of America before grudgingly approving a revised $150 million deal. Rakoff also expressed concerns about "neither admit nor deny" when he approved an SEC settlement with Vitesse in 2011.

Since Rakoff began his campaign, several other federal judges have groused about deals in which the government does not require defendants to admit wrongdoing. In 2010, U.S. District Judge Ellen Huvelle of Washington questioned another SEC settlement with Citi but ultimately approved it. In 2011, after Rakoff's Citi ruling, U.S. District Judge Rudolph Randa of Milwaukee rejected an SEC deal with Koss Corporation and U.S. District Judge Renee Bumb of Camden tossed a Federal Trade Commission settlement with Circa Direct. (Both judges eventually approved revised settlements.) Last year, U.S. District Judge Frederic Block of Brooklyn grilled the SEC about whether it simply expected judges to rubber-stamp its settlement before later approving the agency's deal with former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin. Judge Kane in Colorado now joins that small club.

An SEC representative declined to comment on Kane's order, citing the upcoming 2nd Circuit argument. Rakoff counsel Wing of Lankler Siffert told me that he would probably cite Kane's order at next month's oral argument. "It's a decision by a well-regarded judge," he said.

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