Judge says agency allows banking secrecy
NEW YORK – A judge on Monday used unusually harsh language to strike down a $285 million settlement between Citigroup and the Securities and Exchange Commission over toxic mortgage securities, saying he couldn’t tell whether the deal was fair and criticizing regulators for shielding the public from details of the firm’s wrongdoing.
U.S. District Judge Jed Rakoff said 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.” In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.
Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given “any proven or admitted facts upon which to exercise even a modest degree of independent judgment.”
He called the settlement “neither fair, nor reasonable, nor adequate, nor in the public interest.”
The SEC shot back in a statement issued by Enforcement Director Robert Khuzami, saying the deal was all four of those things and “reasonably reflects the scope of relief that would be obtained after a successful trial.”
Citigroup said in a statement that it disagreed with Rakoff because the proposed settlement was “a fair and reasonable resolution to the SEC’s allegation of negligence” and was consistent with long-established legal standards.
This wasn’t the first time that the judge struck down an SEC settlement with a bank, and Rakoff has made no secret of his disdain for settlements between the government agency and banks for paltry sums and no admission of guilt.
“The SEC’s longstanding policy – hallowed by history, but not by reason – of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations deprives the court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact,” he wrote in Monday’s decision.
Adam Pritchard, a professor of securities law at the University of Michigan Law School, said courts could become clogged with cases that would normally be settled if other judges adopt Rakoff’s reasoning.
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