U.S. District Court Judge Jed S. Rakoff came back with a decision on the proposed settlement between Citigroup and the Securities and Exchange Commission after an extensive hearing on the matter earlier this month. In a 15 page opinion, Judge Rakoff outlined the legal reasoning which led him to reject the $285 million dollar proposed agreement to settle charges filed by the SEC against Citigroup accusing the company of "selling investors slices of a $1 billion mortgage-bond deal called Class V Funding III, without disclosing it was betting against $500 million of those assets."
As expressed in the hearing, Judge Rakoff's criticism of the settlement was focused on the SEC's standard settlement practice which allows agreements where the accused company does not deny or admit wrongdoing. The SEC was critical of the ruling which they believe will waste both SEC and judicial resources while handicapping an established enforcement mechanism.
In the opinion, Judge Rakoff surely didn't pull any punches,
An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts- cold, hard, solid facts, established either by admissions or by trials -it serves no lawful or moral purpose and is simply an engine of oppression.
Finally, in any case like this 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. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.
Accordingly, the Court refuses to approve the proposed Consent Judgment.
The case is SEC v. Citigroup Global Markets Inc, No. 11-07387 (S.D.N.Y). Judge Rakoff directed "the parties to be
ready to try this case on July 16, 2012."