Posted Nov 28, 2011 06:45 pm CST
A federal judge who has balked at previous bank settlements has refused to approve a proposed $285 million deal with Citigroup proposed by the U.S. Securities and Exchange Commission.
U.S. District Judge Jed Rakoff of Manhattan refused to approve the settlement today, saying it was “neither fair, nor reasonable, nor adequate, nor in the public interest,” report the Washington Post and the New York Times. The bank had agreed to pay the money to settle allegations that it sold mortgage-backed securities to clients while betting against the investments through short sales.
Rakoff questioned why the SEC charged the bank with negligence instead of knowing or intentional fraud, and criticized the agency for allowing Citibank to settle its suit without admitting liability, according to the Post report. If the SEC’s allegations are true, “this is a very good deal for Citigroup,” Rakoff said. The judge said he needed more facts to support the proposed settlement, and ordered the parties to get ready for trial.
The Post calls Rakoff’s decision to toss the settlement “a powerful rebuke” to the SEC. The Times says the ruling “could throw the SEC’s enforcement efforts into chaos” because the agency’s settlements often have a provision saying the defendant does not admit a legal violation.