SEC Enforcement Chief Says Judge Rakoff Committted 'Legal Error ...

By Joe Palazzolo

Robert Khuzami, director of the SEC?s enforcement division, announced Thursday afternoon that the agency has asked the U.S. Court of Appeals for the Second Circuit to review U.S. District Judge Jed Rakoff?s rejection of the agency?s proposed $285 million settlement with Citigroup over a mortgage-bond deal.

He issued the following statement:

Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ?unsupported by any proven or acknowledged facts.? As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.

We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits.? For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.

We believe the court was incorrect in requiring an admission of facts ? or a trial ? as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions.? Indeed, in the case against Citigroup, the SEC filed suit after a thorough investigation, the findings of which were described in extensive detail in a 21-page complaint.

The court?s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country.? In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.

Khuzami?s full statement is available here, and the WSJ has a story on the showdown between the SEC and Rakoff here.

Source: http://blogs.wsj.com/law/2011/12/15/rakoff-committed-legal-error-in-citigroup-ruling-khuzami-says/

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