CMKX Unofficial Message Board - FEDERAL JUDGE SHARPLY CRITICIZES SEC

« FEDERAL JUDGE SHARPLY CRITICIZES SEC »

Welcome Guest. Please Login or Register.
May 24, 2013, 1:09am

CMKX Unofficial Message Board :: General :: General Discussion :: FEDERAL JUDGE SHARPLY CRITICIZES SEC

Page 1 of 2 » Jump to page Go

Author

Topic: FEDERAL JUDGE SHARPLY CRITICIZES SEC (Read 2,603 times)

sunbeam777
God of Diamonds

member is offline

Joined: Mar 2010
Gender: Male

Posts: 1,020

FEDERAL JUDGE SHARPLY CRITICIZES SEC
« Thread Started on Nov 28, 2011, 2:23pm »

SEC-Citi Pact Rejected by Judge Rakoff

By CHAD BRAY And JEAN EAGLESHAM

NEW YORK—A federal judge who has sharply criticized the Securities and Exchange Commission's approach to settling securities cases has rejected a $285 million settlement with Citigroup Inc. over a mortgage-bond deal.

JUDGE JED S. RAKOFF

In an order Monday, U.S. District Judge Jed S. Rakoff said the regulator, by not forcing the bank to admit to wrongdoing, failed to provide him with "a framework for determining" if the agreement is appropriate.

"The SEC's long-standing 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," the judge said.

Earlier this year, the SEC accused Citigroup of failing to disclose to investors its role in selecting underlying investments in the $1 billion mortgage-bond deal called Class V Funding III—or that it retained a "short" position betting against those assets.

On Monday, the judge consolidated the Citigroup lawsuit with a separate but related case brought by the SEC against a former Citigroup employee who allegedly was the principal employee responsible for overseeing the deal's structure. He set the consolidated case for trial on July 16, 2012.

A Citigroup spokeswoman declined to comment Monday, saying the bank would have no comment until it had reviewed the order. The SEC didn't immediately have a comment when reached Monday.

The SEC has argued in part that it has been able to reach settlements and avoid protracted litigation in the past by not requiring an admission of wrongdoing.

At a hearing earlier this month, Matthew T. Martens, chief litigation counsel in the SEC's enforcement division, said the regulator has settled cases in a similar fashion to the Citigroup pact for nearly 40 years in order to avoid having the company later deny to the public that it had committed such activity.

However, Judge Rakoff is critical of that approach, saying the public interest requires a fuller understanding the facts.

"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," the judge said in his order Monday. "But the SEC, 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."

The judge's decision isn't dissimilar from prior cases he has handled involving the SEC.

In 2010, the judge reluctantly approved a revised settlement between Bank of America Corp. and the SEC over the bank's disclosures before its acquisition of Merrill Lynch after the pact was increased to $150 million and he received more information about the decision-making process behind the merger disclosures.

Last year, the judge also ordered the SEC and trading firm Schottenfeld Group LLC to provide additional details about how a disgorgement figure was calculated in a settlement of a closely watched insider-trading case, but eventually approved the deal.

"Although the prophylactic measures appear somewhat superficial, the court, after giving the requisite deference to the plaintiff's assessment in this regard, hereby approves the settlement," the judge said in approving the Schottenfeld settlement.

On Monday, Judge Rakoff questioned whether the Citigroup pact did more than serve the "narrow interests" of the parties.

"If the allegations of the complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business," the judge said. "It is harder to discern from the limited information before the court what the SEC is getting from this settlement other than a quick headline."

The judge said the settlement, by charging Citigroup only with negligence and not requiring an admission of wrongdoing, "deals a double blow to any assistance the defrauded investors might seek to derive from the SEC litigation in attempting to recoup their losses through private litigation" since private investors can't pursue securities claims based on negligence.

http://online.wsj.com/article/SB10001424052970203935604577066242448635560.html

« Last Edit: Nov 28, 2011, 2:25pm by sunbeam777 »