December 16, 2011 / 11:11 PM / 7 years ago

SEC asks judge to pause Citigroup case, await appeal

- (Reuters) - The top U.S. market regulator asked the judge who rejected a major Citigroup Inc civil securities fraud settlement to freeze all proceedings in the case pending the outcome of its appeal of the ruling.

The Securities and Exchange Commission on Friday asked Manhattan federal court Judge Jed Rakoff for a stay in the case pending its appeal of the judge’s rejection last month of a $285 million pact with the bank.

In that ruling, the judge criticized the SEC’s policy of settling lawsuits without having defendants admit or deny wrongdoing. The SEC filed its appeal on Thursday.

“But delaying trial in this matter by a few months while the appeal is pending will not harm the public interest, particularly given that the Second Circuit’s decision may result in the approval of a consent judgment that would result in the prompt creation of $285 million fund to benefit injured investors,” the SEC said in court papers.

The SEC’s challenge will be reviewed by the 2nd U.S. Circuit Court of Appeals in New York.

Such appeals are unusual for the regulator, which is used to hammering out deals with defendants and having them approved by judges.

Rakoff’s November 28 ruling threw out a deal over the sale of toxic mortgage debt. The judge wrote at the time that the settlement was “neither reasonable, nor fair, nor adequate, nor in the public interest.” He set a trial date of July 16, 2012.

Citigroup also disagreed with the judge’s ruling. In a statement on Thursday, the bank said it believes the settlement “fully complies with long-established legal standards. In the event the case is tried, we would present substantial factual and legal defenses to the charges.”

In its complaint, the SEC had accused Citigroup of selling a $1 billion mortgage-linked collateralized debt obligation, Class V Funding III, in 2007 as the housing market was beginning to collapse, and then betting against the transaction.

The SEC said the CDO caused more than $700 million of investor losses. One Citigroup employee, director Brian Stoker, was charged by the SEC, and is contesting those charges.

Rakoff has been a thorn in the side of the SEC. In 2009, he rejected its initial proposed settlement with Bank of America Corp over its takeover of Merrill Lynch & Co.

The case is SEC v Citigroup Global Markets Inc, U.S. District Court, Southern District of New York, No. 11-07387.

Reporting by Basil Katz; editing by Carol Bishopric

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