On Monday, Nov. 28, a Federal Judge, using tough language, rejected the SEC and Citigroup's proposed $285 million settlement over toxic mortgage-backed securities. In general, US District Judge (NYC) Jed Rakoff said because of the lack of details provided he could not tell whether the deal was “fair, reasonable, adequate and in the public interest,” as required by law. In addition, the Judge concluded that the $285 million fine was “pocket change to any entity as large as Citigroup.” Citigroup made $160 million from the toxic transactions and investors lost $700 million.
More importantly and specifically, Judge Rakoff criticized the SEC for allowing Citigroup (and other companies) to settle cases without admitting wrongdoing. He went on to say that the SEC “has a duty, inherent in its statutory mission, to see that the truth emerges” and the public has a right to know what happens in cases that touch on "the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives." The Judge concluded (after spending hours trying to assess the settlement) that he simply had not been given "any proven or admitted facts upon which to exercise even a modest degree of independent judgment."
Here at Pomlaw, we strongly agree that these so-called “no-admit/no-deny” settlements are no real deterrent to future bad behavior because they do not extract a heavy enough price, in dollars or reputation.” “[W]ithout any admission, there is no way to know if the remedies — including fines and pledges by Citigroup not to violate antifraud laws in the future — will, indeed, protect investors and ensure the integrity of markets.” See NYT’s editorial, “The S.E.C.’s Enabling”.
For more information see NYT article and opinion entitled, respectively “Judge Blocks Citigroup Settlement With S.E.C.” and “The S.E.C.’s Enabling” and WSJ article and opinion entitled, respectively “NY Judge Rejects $285M SEC-Citigroup Agreement” and “Rakoff's SEC Rebuke”. See also, Judge Rakoff’s Decision in SEC v. CitiGroup (SNDY 11-18-11).
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