December 30, 2011

Judge Rakoff Berates SEC Again in Citigroup Case

Accuses agency of shutting him out on court action

The SEC is battling in federal court to save its deal with Citigroup. The SEC is battling in federal court to save its deal with Citigroup.

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Federal Judge Jed S. Rakoff is not pleased with the Securities and Exchange Commission again. Nor is he happy with Citigroup, as he accused both the agency and the financial institution late Thursday of making an end run around his decision not to delay the court case against Citi by its regulator.

As previously reported by AdvisorOne.com, Rakoff threw out the SEC’s $285 million settlement with Citi over a $1 billion mortgage fund, saying that he could not tell whether the settlement was “fair, reasonable, adequate and in the public interest,” as legally required, since the agency claimed, but did not prove fraud on the part of Citigroup. He ordered the case to go to trial after issuing a stinging rebuke of the SEC for its customary handling of such cases, which does not require admission of wrongdoing and assesses penalties Rakoff feels are inadequate.

The SEC appealed the ruling, both with Rakoff and later, on Tuesday morning, with an emergency appeal filing in the 2nd U.S. Circuit Court of Appeals in Manhattan. However, the agency, and Citigroup, both apparently failed to mention that fact to Rakoff in a phone conversation on Tuesday afternoon, shortly before both the judge and the appeals court issued their rulings.

A mere 78 seconds before Rakoff's ruling against the SEC was issued, the appeals court granted a two-week delay. Rakoff was not pleased.

He issued a written order that berated the SEC for its action, saying that the agency and Citigroup had called him around 3:30 Tuesday afternoon to discuss the case, without mentioning the fact that the SEC had also filed an emergency appeal in appeals court. He blasted the SEC and said that it and Citigroup had potentially misled the court. The ruling of the appeals court essentially negated all the work that Rakoff had done over the holiday weekend to provide the SEC with a ruling as quickly as he could, and also voided his ruling itself, issued 78 seconds too late.

Saying that he had "spent the intervening Christmas holiday considering the parties' positions and drafting an opinion, so that [the court] could file it on Dec. 27, i.e. the first business day after the Christmas holiday," Rakoff also forestalled any future attempts to circumvent him, ordering both the SEC and Citigroup to "promptly notify" him of any filings they make in the appeals court. 

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