Remember When Judge Rakoff Humiliated Citi? A Court Just Rejected His Ruling

judge jed rakoff

An appeals court issued a stay this morning of a November ruling blocking the SEC’s $285 million with Citi Group over charges it fraudulently sold collateralized debt obligations, shooting down Judge Jed Rakoff’s controversial judgment.

The Second Circuit Court of Appeals ruled that it had no reason to doubt the SEC’s claim that the settlement was in the public interest, and in any event both courts must give deference to the SEC’s judgment on wholly discretionary matters of policy.

The court also referenced the difficulties, frequently mentioned by the SEC, of obtaining convictions of a counterparty.

“The (district) court appeared to assume that the SEC had a readily available option to obtain a judgment that established Citigroup’s liability, either by trial or settlement, but chose for no good reason to settle for less,” the ruling stated.

Citi ended up joining with the SEC in filing the stay motion. “Citigroup joins with the SEC in all of its arguments,” the ruling notes.

In November, Judge Rakoff rejected the SEC’s settlement, saying it was “neither reasonable, nor fair, nor adequate, nor in the public interest.” He also questioned the merit of the SEC’s “neither confirm nor deny” policy.

The appeals court’s ruling will likely make it difficult if not impossible for lower courts to override future settlements brought by the SEC.

“We are pleased that the appeals court found ‘no reason to doubt’ the SEC’s view that the settlement ordering Citigroup to return $285 million to harmed investors and adopt business reforms is in the public interest,” SEC Enforcement Director Robert Khuzami said in a statement.

Read the full opinion here.

[h/t RacetotheBottom]

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