In SEC v. Citigroup Global Markets Inc., Southern District Judge Jed S. Rakoff on Monday rejected a proposed $285 million settlement between the Securities and Exchange Commission and Citigroup.1 The SEC charged Citigroup with negligence based on its sale of collateralized debt obligations. The proposed settlement would have resolved the action with Citigroup neither admitting nor denying the allegations but with the court enjoining it from future violations of the securities laws.
SEC settlements, of course, always permit defendants to settle without admitting or denying liability and routinely include court-ordered injunctions against future violations of the securities laws. During an earlier hearing regarding the proposed settlement, however, Judge Rakoff questioned whether a district court judge should reject a settlement as against the public interest when there has been no determination as to liability, i.e., without getting to the truth of the allegations. In his opinion rejecting the settlement, Judge Rakoff expressed numerous concerns and concluded that the SEC’s policy of permitting defendants to settle without admitting or denying liability “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.”
