Sunday, December 4, 2011

$285M SEC/Citi Settlement Over Mtg Derivatives Kiboshed; Judge: Policy Of Allowing Targets Off Hook w/out Admissions, Denials Not In Public Interest

In New York City, The New York Times reports:

  • A federal judge in New York on Monday threw out a settlement between the Securities and Exchange Commission and Citigroup over a 2007 mortgage derivatives deal, saying that the S.E.C.’s policy of settling cases by allowing a company to neither admit nor deny the agency’s allegations did not satisfy the law.

  • The judge, Jed S. Rakoff of United States District Court in Manhattan, ruled that the S.E.C.’s $285 million settlement, announced last month, is “neither fair, nor reasonable, nor adequate, nor in the public interest(1) because it does not provide the court with evidence on which to judge the settlement.

  • The ruling could throw the S.E.C.’s enforcement efforts into chaos, because a majority of the fraud cases and other actions that the agency brings against Wall Street firms are settled out of court, most often with a condition that the defendant does not admit that it violated the law while also promising not to deny it.

For more, see Judge Blocks Citigroup Settlement With S.E.C.

For the ruling, see SEC v. Citgroup Global Markets, Inc.

(1) With regard to the settlement falling short in meeting the public interest, Judge Rakoff stated (SEC v. Citgroup Global Markets, Inc., at page 15):

  • Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.

    In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.

    Accordingly, the Court refuses to approve the proposed Consent Judgment. Instead, the Court hereby consolidates this case with the Stoker action, adopts the Case Management Order in that action as equally applicable to the instant case, and directs the parties to be ready to try this case on July 16, 2012.


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