A federal judge reluctantly approved a $285 million settlement between Citigroup and the Securities and Exchange Commission Tuesday over allegations that the global bank misled investors on a $1 billion package of mortgage bonds. U.S. District Court Judge Jed Rakoff acted two months after a federal appeals court ruled that he had shown an “abuse of discretion” by blocking the 2011 settlement in an earlier ruling.
Rakoff initially refused to sign off on legal grounds that the two sides hadn’t given him enough information to determine whether the settlement was fair and “in the public interest.” He also criticized the SEC’s failure to require Citigroup to acknowledge wrongdoing as a condition of the deal. “They who must be obeyed have spoken, and this court’s duty is to faithfully fulfill their mandate,” Rakoff wrote of the appeals court rebuff in a three-page opinion.
“Nevertheless, this court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever,” wrote Rakoff. “But it would be a dereliction of duty for this court to seek to evade the dictates of the Court of Appeals. That court has now fixed the menu, leaving this court with nothing but sour grapes.”
The case focused on SEC charges that Citigroup negligently misrepresented its role and financial interest in the 2007 structuring and marketing of the bond deal. The New York-based global bank failed to disclose that it placed financial bets the investment would fail, and made roughly $160 million in profits when that forecast proved correct, the SEC charged.
Under the proposed settlement, Citigroup agreed to disgorge the $160 million, and pay a $95 million civil penalty along with $30 million in interest. The bank also agreed to make internal oversight changes over a three-year period to guard against future violations.