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Judge Smacks Down Citigroup–SEC Settlement

Citigroup CEO Vikram Pandit.

U.S. District Judge Jed Rakoff wants to see a little bit more blood before the SEC and Citigroup can kiss and make up. In a court order today, Rakoff rejected the pair's $285 million settlement over alleged mortgage derivatives fraud, concluding "regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest." Then he really went in:

Most fundamentally, this is because it does not provide the Court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards. Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

Rakoff set a trial date of July 16, 2012, but Zero Hedge has a more pessimistic outlook: "Realistically, what happens is SEC will fine Citi with a much greater fine, probably $500MM or so, and Rakoff will end up approving the settlement, because as the status quo slowly implodes, nothing really changes until everything finally crashes." While he's often a critic of SEC practices, Rakoff reportedly accepted a $315 settlement in a similar case against Merrill Lynch. If that's indeed what will happen here, too, Judge Rakoff's strong words are just a consolation prize for the public.

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Photo: Bloomberg/2011 Bloomberg