The Securities and Exchange Commission's suit against Citigroup Inc. will remain on hold while a federal appeals court considers whether to review a judge's rejection of a $285 million settlement in the case.
In a series of rulings stemming from a November decision by U.S. District Judge Jed Rakoff to reject a proposed settlement between the SEC and Citigroup in a case involving claims that Citi misled investors, the 2nd U.S. Circuit Court of Appeals in New York agreed to the SEC's request to delay the case until at least Jan. 17.
In his Nov. 28 ruling, Mr. Rakoff criticized the agency's practice of settling without requiring the subject of allegations to admit wrongdoing. The judge said the Citi settlement, which involved allegations that Citi deceived investors in a $1 billion financial product linked to risky mortgages, didn't provide him with “any proven or admitted facts” to inform his judgment.
In appealing the decision to the Circuit Court, the commission argued for putting the case on hold because Mr. Rakoff told Citigroup to respond to the SEC's complaint this week.
“The commission seeks a stay on an emergency basis because the Jan. 3 deadline for Citigroup to answer creates an exigency that threatens the commission with additional irreparable harm,” the regulator said in court papers.
MOTION TO BE HEARD
The court said the SEC's request to stay the case in the lower court and to expedite the appeal will be submitted to a motions panel of the court Jan. 17. The case will be kept on hold until the panel decides whether to grant the requests, the court said in a two-sentence order.
The SEC said it wants to preserve agency resources by putting the case on hold while the appeals court considers Mr. Rakoff's ruling.
The judge, a former federal prosecutor and civil litigator, first criticized the SEC's practice of allowing financial institutions to settle enforcement actions without admitting or denying the agency's allegations in 2009, when he rejected a $33 million agreement between the SEC and Bank of America Corp. Mr. Rakoff “reluctantly” approved a $150 million accord in that case in February 2010.
The commission said last month that it was unaware that any court had ever required that “proven or acknowledged facts” be established as a condition to the approval of a proposed consent judgment submitted by a federal agency.
