U.S. District Court Judge Jed Rakoff administered a mighty tongue-lashing to the SEC in a proposed settlement with Citigroup the same day his colleague on the bench in New York City Miriam Goldman Cedarbaum dismissed fraud charges against a JP Morgan executive. Orders in the two cases involving bank sales of collateralized debt obligations were issued Thursday.
Rakoff is ordering the parties to provide detailed answers to nine questions by the next scheduled hearing the in the Citigroup case on Nov. 9. Those questions express severe skepticism with the proposed $285 million settlement of allegations the bank dumped toxic CDOs on unsuspecting investors.
The judge’s stinging rebuke to the SEC implied the government agency has acted arbitrarily in reaching its settlement with the bank. Among the questions were challenges to the amount of the penalty and culpability for the fraud.
Question No. 3, for example, is one of several challenging the SEC’s calculations of various penalties: “What was the total loss to the victims as a result of Citigroup’s actions? How was this determined? lf, as the SEC’s submission states, the loss was ‘at least’ $160 million, what was it at most?”