U.S. appeals court says judge wrongly rejected SEC-Citigroup accord

NEW YORK, June 4 Wed Jun 4, 2014 10:13am EDT

NEW YORK, June 4 (Reuters) - A U.S. appeals court on Wednesday said a federal judge abused his discretion by rejecting a $285 million fraud settlement between Citigroup Inc and the U.S. Securities and Exchange Commission.

The 2nd U.S. Circuit Court of Appeals in New York said U.S. District Judge Jed Rakoff was wrong to require the SEC to establish the "truth" of its allegations as a condition of approving the settlement.

The decision came in a case that became a flashpoint in a debate over the SEC longtime policy of letting some corporate defendants settle without admitting or denying its charges.

Citigroup's settlement was meant to resolve claims that the bank misled investors in 2007 about a $1 billion collateralized debt obligation, Class V Funding III, and simultaneously bet against the debt as the U.S. housing market began to falter.

Rakoff in November 2011 rejected the accord as neither fair, nor adequate nor in the public interest, saying the "neither admit nor deny" policy left him no facts on which to judge the settlement. (Reporting by Nate Raymond and Jonathan Stempel in New York; Editing by Lisa Von Ahn)