{"id":1103,"date":"2012-03-20T21:20:34","date_gmt":"2012-03-21T01:20:34","guid":{"rendered":"http:\/\/www3.law.harvard.edu\/journals\/hlpr\/?p=1103"},"modified":"2015-10-02T15:24:21","modified_gmt":"2015-10-02T15:24:21","slug":"court-sides-with-sec-and-citigroup-over-settlement","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/lpr\/2012\/03\/20\/court-sides-with-sec-and-citigroup-over-settlement\/","title":{"rendered":"Court Sides with SEC and Citigroup over Settlement"},"content":{"rendered":"

By Billy Corriher<\/p>\n

<\/em>The Second Circuit Court of Appeals has\u00a0resurrected<\/a>\u00a0a deal between the Securities and Exchange Commission (SEC) and Citigroup to settle fraud charges based on the bank\u2019s sale of certain mortgage-backed securities.\u00a0 District Court Judge Jed Rakoff rejected the settlement deal last fall,\u00a0ruling<\/a>\u00a0that it was contrary to the public interest.\u00a0 The Second Circuit stayed Rakoff\u2019s order and ruled that the parties are likely to prevail in arguing that the judge exceeded his authority. \u00a0The court characterized Rakoff\u2019s position as requiring an admission of liability to approve the settlement, suggesting he would not \u201capprove a settlement that represents a compromise.\u201d \u00a0While judges are permitted to disagree with an agency\u2019s decision, the Second Circuit said they need a \u201csubstantial reason\u201d to do so.<\/p>\n

Rakoff\u2019s battle with the SEC and Citigroup comes amid continuing outrage over banks\u2019 role in the financial crisis and the government\u2019s failure\u00a0to hold them accountable. \u00a0Citigroup faces serious allegations: just before the crisis, the bank realized it owned risky mortgage-backed securities, so it set up investment vehicles for them and lied to purchasers about the risk. Citigroup made a $160 million profit by shorting the investments, while investors lost $700 million. \u00a0Rakoff criticized the SEC\u2019s $95 million penalty as \u201cpocket change\u201d and \u201ca very good deal\u201d for Citigroup. \u00a0Rakoff previously\u00a0rejected<\/a>\u00a0the SEC\u2019s settlement with Bank of America, only\u00a0approving<\/a>\u00a0it after the penalty\u00a0went from $33 million to $150 million.
\n
\nThe Second Circuit\u2019s decision delayed the trial, pending a ruling by a three-judge panel on whether Rakoff actually exceeded his authority in rejecting the settlement. \u00a0Rakoff said the law requires him to determine whether such settlements are in the public interest, and that he could not rule that it was. \u00a0If Rakoff indeed went too far, it is hard to see what is left of the legal standard that such settlements must be in the public interest.<\/p>\n

Unlike most appeals, both parties to this lawsuit were in agreement. \u00a0They argued Rakoff was wrong to require a tougher settlement.\u00a0 The SEC and Wall Street want these investigations to end.\u00a0 Yet, as Rakoff said, \u201c[I]n any case . . . that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.\u201d Other judges have followed Rakoff\u2019s lead.\u00a0 The SEC has faced criticism for its response to the financial crisis.<\/p>\n

The circuit courts, possibly the Supreme Court, will determine the appropriate role for trial judges in SEC cases.\u00a0 While courts struggle with this question, the public must demand results from the SEC.\u00a0 Congress and the President must ensure the SEC has a clear mission and enough resources for tough enforcement. \u00a0We should consider making the agency more accountable to political leaders. \u00a0The public is still angry that Wall Street wrecked the economy, and Rakoff is\u00a0right<\/a>\u00a0that these settlements constitute \u201chalf-baked justice.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

By Billy Corriher The Second Circuit Court of Appeals has\u00a0resurrected\u00a0a deal between the Securities and Exchange Commission (SEC) and Citigroup […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[2],"tags":[],"class_list":["post-1103","post","type-post","status-publish","format-standard","hentry","category-blog"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/peZQka-hN","_links":{"self":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts\/1103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/comments?post=1103"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/posts\/1103\/revisions"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/media?parent=1103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/categories?post=1103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/lpr\/wp-json\/wp\/v2\/tags?post=1103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}