The U.S. Securities and Exchange Commission’s suit against Citigroup Inc. will remain on hold while a federal appeals court considers whether to review a judge’s rejection of a $285 million settlement in the case.
The U.S. Court of Appeals in Manhattan yesterday agreed to the SEC’s request to delay the case until at least Jan. 17. The agency is challenging U.S. District Judge Jed Rakoff’s refusal last month to approve an accord resolving claims that New York-based Citigroup misled investors in a $1 billion financial product linked to risky mortgages. The agency said halting the case was necessary because Rakoff told Citigroup to respond to the SEC’s complaint next week.
“The commission seeks a stay on an emergency basis because the Jan. 3 deadline for Citigroup to answer creates an exigency that threatens the commission with additional irreparable harm,” the regulator said in court papers.
The court said the SEC’s request to stay the case in the lower court and to expedite the appeal will be submitted to a motions panel of the court Jan. 17. The case will be kept on hold until the panel decides whether to grant the requests, the court said in a two-sentence order.
Admission of Wrongdoing
In his Nov. 28 ruling, Rakoff criticized the agency’s practice of settling without requiring the subject of the allegations to admit wrongdoing. The Manhattan judge said the Citigroup settlement didn’t provide him with “any proven or admitted facts” to inform his judgment.
The SEC said it wanted to preserve agency resources by putting the case on hold while the appeals court considers Rakoff’s ruling.
Earlier yesterday, Rakoff issued an order denying a request from the SEC and Citigroup’s that he halt the case during the appeal.
Rakoff, a former federal prosecutor and civil litigator, has previously criticized the SEC’s practice of allowing financial institutions to settle enforcement actions without admitting or denying the agency’s allegations. In 2009, he rejected a $33 million agreement between the SEC and Bank of America Corp. Rakoff “reluctantly” approved a $150 million accord in that case in February 2010.
The commission said this month that it was unaware any court has ever before required that “proven or acknowledged facts” be established as a condition to the approval of a proposed consent judgment submitted by a federal government agency.
The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second Circuit (New York). The district court case is 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).