Judge Rejects SEC-Citi Settlement

In a strong rebuke to the Securities and Exchange Commission practice of allowing companies to settle without admitting to any wrongdoing, a federal judge in Manhattan on Monday rejected a $285 million settlement that had been previously agreed upon between the commission and financial giant Citigroup over alleged fraud charges related to the financial crisis, according to the New York Times. The settlement, reached this past October, was over charges that the bank had hidden the true nature of the risky mortgage-backed securities that it had sold to investors before the peak of the financial crisis. It was the third such settlement the SEC had reached with major financial institutions, having made similar agreements with JP Morgan Chase and Goldman Sachs last year. Like the other settlements, the SEC’s deal with Citigroup allowed the bank to pay the money without admitting it had done anything wrong.

The judge in the case, Jed S. Rakoff, derided this practice, saying that while the SEC has encouraged civil litigation for investors to recover damages, allowing Citigroup to settle without admitting wrongdoing makes it much more difficult to do so. He further condemned the size of the civil penalty, saying that, to an entity as big as Citigroup, it is “pocket change.”

Considering that Rakoff must ultimately sign off on any settlement between the SEC and Citigroup, his Monday rejection means that the two sides will probably go to trial in July unless they can propose a settlement that he Rakoff feels is more appropriate, according to the LA Times. The SEC, in a statement, said that doing so would eat up the agency’s resources and time away from further fraud investigations.