On March 15, a panel of the 2nd U.S. Circuit Court of Appeals granted a stay of the district court litigation brought by the Securities and Exchange Commission against Citigroup Global Markets Inc. The district court had rejected a settlement and consent judgment agreed upon by the parties in a decision that threatens to disrupt the SEC’s long-standing policy of settling cases without demanding an admission of wrongdoing.
The decision stems from litigation filed by the SEC against Citigroup alleging the company knew in early 2007 that the bottom was falling out of the market for mortgage-backed securities (in which it was heavily invested) and housed those assets within a new billion-dollar fund, which it positioned as an attractive investment option, rigorously vetted and selected by an independent investment adviser. By doing so, Citigroup was able to offload much of its toxic mortgage-backed securities at a premium. By the SEC’s measure, Citigroup netted $160 million in profit while the investors in the fund lost $700 million.
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