In an appeal that had the securities industry holding its breath for two years, the Second Circuit, on June 4, 2014, vacated Southern District Judge Jed Rakoff's 2011 order rejecting a proposed settlement between the SEC and Citigroup Global Markets. Vacating and remanding the action to the district court for further proceedings, the Second Circuit held that Judge Rakoff abused his discretion and applied an incorrect standard when determining whether the settlement was "fair, reasonable, and in the public interest." Most significantly, in SEC v. Citigroup, the Second Circuit has altered the standard to be applied by federal district courts when analyzing an enforcement agency proposed consent decree, ruling for the first time that courts should not assess whether the terms of the settlement are adequate.
After a four-year investigation of Citigroup's conduct in structuring and marketing a collateralized debt obligation (CDO), the SEC filed a civil action against Citigroup in October 2011. The SEC alleged that Citigroup sold a CDO that included poor-quality mortgage-backed securities, while simultaneously betting against those securities, without disclosing its short position or its role in selecting the assets. Citigroup had agreed to pay $285 million to settle charges that it violated securities laws and duped investors. Further, Citigroup agreed to be permanently enjoined from future violations of the securities laws and to establish stricter procedures to prevent future violations. As had been common in consent judgments, Citigroup was not required to admit any of the SEC's allegations.
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Topics: Chevron Deference, Citigroup, Consent Decrees, Enforcement, Enforcement Actions, Interlocutory Appeals, Judge Rakoff, Risk Management, SEC, SEC v Citigroup, Settlement
Published In: Administrative Agency Updates, Civil Procedure Updates, Civil Remedies Updates, Finance & Banking Updates, Securities Updates
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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