A United States District Court judge in New York City threw out a $285 million settlement between the SEC and Citigroup, calling for a reevaluation in the way the Commission has been enforcing its fraud cases. In the now revoked settlement, Citigroup was allowed to neither admit nor deny any wrongdoing in past mortgage practices.
In recent cases involving the SEC and popular lenders such as Bank of America, JPMorgan Chase, and UBS amongst others, the Securities Exchange Commission proposed to settle the case by invoking a fine on the bank and allowing it to have no remark on the agency’s findings. These types of settlements require approval by a federal judge.
According to the Securities Exchange Commission, Citibank attached securities they believed would fail to a one billion dollar mortgage fund in order to profit off of its customers when the values declined. The bank is being charged with fraud because they did not alert customers of its practices.
In the original settlement, Citibank was required to pay out $285 million to its customers, who lost an estimated $700 million due to the bank’s fraudulent behavior. In court, Matthew T. Martens, chief litigation counsel in the SEC’s Enforcement Division, said that the proposed settlement should be approved by the judge as it is “fair, adequate, and reasonable.”
U.S. District Judge Jed S. Rakoff questioned the approval of the settlement and expressed concern over approving it when the defendant neither admits nor denies any wrongdoing. Rakoff remarked that the SEC “has a duty, inherent in its statutory mission, to see that the truth emerges” and calls the $285 million settlement as “pocket change to any entity as large as Citigroup.”
Robert Khuzami, director of the SEC’s division of enforcement, stood by his agency’s findings and said that this ruling “ignores decades of established practice throughout federal agencies and decisions of the federal courts.”
This ruling comes at a time of outlash against Wall Street and major banking corporations, especially the role Citibank and other lenders played in the housing crisis, leading America into its greatest economic recession since the Great Depression.
