(Adds case background, SEC comment, Citi spokeswoman declining
By Joseph Ax
NEW YORK Aug 5 A U.S. judge on Tuesday
reluctantly approved a $285 million fraud settlement between
Citigroup Inc and the U.S. Securities and Exchange
Commission, two months after an appeals court voided his
decision to reject it as inadequate.
U.S. District Judge Jed Rakoff said he had little choice but
to approve the deal, which did not require the bank to admit to
any wrongdoing. But he said he feared the 2nd U.S. Circuit Court
of Appeals' decision would rob such settlements of any
"That court has now fixed the menu, leaving this court with
nothing but sour grapes," he wrote in a brief opinion outlining
Rakoff had objected to the SEC's decades-old practice of
letting some corporate defendants settle allegations without
admitting or denying the charges, a decision that is credited
with altering the public debate over such deals.
Last June, SEC Chair Mary Jo White, a former federal
prosecutor, adopted a policy of requiring admissions in certain
major cases, citing the need for more public accountability.
The 2nd Circuit in June ruled that Rakoff had abused his
discretion in rebuffing the settlement in November 2011, finding
he had failed to give enough deference to the regulator.
The appeals court said Rakoff was wrong to require the SEC
to show the "truth" of its allegations. Such fact-finding is
left for trials, while "consent decrees are primarily about
pragmatism," Circuit Judge Rosemary Pooler wrote for the court.
The SEC complaint against Citigroup concerned a 2007 sale of
mortgage-linked securities debt that caused more than $700
million of investor losses.
In his opinion on Tuesday, Rakoff characterized the standard
set forth by the 2nd Circuit for approving settlements to be
"very modest" and warned that it left judges with little role.
"This court fears that, as a result of the Court of Appeal's
decision, the settlements reached by governmental regulatory
bodies and enforced by the judiciary's contempt powers will in
practice be subject to no meaningful oversight whatsoever," he
A spokeswoman for Citigroup declined to comment. But SEC
Enforcement Division Director Andrew Ceresney said the
settlement "holds Citigroup accountable, deprives the firm of
its ill-gotten gains, and provides $285 million for harmed
The appeals court decision was seen among legal experts as a
victory for the SEC, even as they emphasized the impact Rakoff's
ruling had on public opinion and the agency's enforcement
The iconoclastic Rakoff has questioned the SEC in the past;
in 2009, he rejected as too lenient the regulator's original
accord with Bank of America Corp over the bank's purchase of
In recent years, he also has publicly criticized U.S.
prosecutors for failing to hold Wall Street executives
accountable for the financial crisis.
Under White, the SEC has extracted several admissions of
wrongdoing, including from JPMorgan Chase & Co over its
$6.2 billion trading loss in London, and from billionaire Philip
Falcone over transactions at his hedge fund.
In 2012, under White's predecessor Mary Schapiro, the SEC
decided to stop allowing settling defendants to neither admit
nor deny charges when they acknowledge guilt in related U.S.
Department of Justice criminal cases.
The case is U.S. Securities and Exchange Commission v.
Citigroup Global Markets Inc., U.S. District Court for the
Southern District of New York, No. 11-cv-7387.
(Reporting by Joseph Ax; Additional reporting by Jonathan
Stempel; Editing by Lisa Von Ahn, Dan Grebler and Tom Brown)