Rakoff turns to ex-colleague for SEC-Citi appeal

NEW YORK Fri Mar 16, 2012 7:53pm EDT

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NEW YORK (Reuters) - Even judges need their own lawyers, sometimes.

U.S. District Judge Jed Rakoff in New York will get help from a former colleague to argue in support of his controversial decision to reject a fraud settlement between the Securities and Exchange Commission and Citigroup Inc (C.N) over mortgage investments.

John "Rusty" Wing, a partner at Lankler Siffert & Wohl in New York, will seek to persuade the 2nd U.S. Circuit Court of Appeals that Rakoff was correct when he voided the $285 million civil settlement on November 28. The SEC and New York-based Citigroup are seeking to overturn that decision.

Rakoff had recommended the appointment of Wing, who will not be paid for his work, according to an appeals court order on Friday announcing the appointment. Technically, Wing will not represent Rakoff but will argue in support of his position.

The two men worked as federal prosecutors in the U.S. Attorney's office in Manhattan in the 1970s.

Wing was not immediately available for comment.

At a hearing on an unrelated case in his own court later on Friday, Rakoff demonstrated his dry sense of humor about the situation.

He told the lawyers that, fresh from a week as a guest judge on a 2nd Circuit panel, he was limiting their arguments to 20 minutes each. "That is double what you get there.

"I have nothing but the highest opinion these days of course for the court of appeals," Rakoff quipped.

In his Citigroup ruling, Rakoff concluded that because the SEC settlement did not require the bank to admit or deny liability, he could not determine whether it was fair or in the public interest.

But an appeals court panel on Thursday said Rakoff may have overstepped his authority because federal courts should not "dictate policy to executive administrative agencies."

The panel also said that "the SEC and Citigroup have made a strong showing of likelihood of success" that the rejection should be set aside. No date has been set for the appeal.

The SEC and other federal agencies have long let companies settle investigations without admitting wrongdoing. If Rakoff's decision is upheld, many settlements might become substantially more difficult or impossible to reach.

Wing was chief of the fraud unit in the Manhattan U.S. Attorney's Office from 1972 to 1978, according to a biography on his law firm's website. He was a partner at Weil, Gotshal & Manges from 1978 to 2005, and joined his current firm in 2006.

Rakoff worked in the U.S. Attorney's office from 1973 to 1980, and was chief of business and securities fraud prosecutions from 1978 to 1980.

The Citigroup settlement was intended to resolve charges that the third-largest U.S. bank sold $1 billion of risky mortgage-linked securities in 2007 without disclosing to investors that it was betting against the debt. Investors lost more than $700 million, the SEC said.

The case is SEC v. Citigroup Global Markets Inc, 2nd U.S. Circuit Court of Appeals, No. 11-5227.

(Reporting By Jonathan Stempel in New York; Editing by Martha Graybow and John Wallace)

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