The Security Exchange Commission is supposed to monitor the financial market to prevent wrongdoing but in reality has had a far too cozy relationship with it. Now a federal judge has called the SEC to task for it's policy of letting banking institutions "off the hook" by shielding them from public scrutiny of their wrongdoing as part of the settlement.
Cites need for public to know more about allegations financial giant misled investors
By Larry Neumeister
A federal judge on Monday used unusually harsh language to strike down a $285 million settlement between Citigroup and the Securities and Exchange Commission, saying he couldn't tell whether the deal was fair and criticizing regulators for shielding the public from the details of what the firm did wrong.
U.S. District Judge Jed Rakoff said the public has a right to know what happens in cases that touch on "the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives." In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.
Rakoff said he had spent hours trying to assess the settlement but concluded that he had not been given "any proven or admitted facts upon which to exercise even a modest degree of independent judgment." He called the settlement "neither fair, nor reasonable, nor adequate, nor in the public interest."
The SEC shot back in a statement issued by Enforcement Director Robert Khuzami, saying the deal was "fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial."
The SEC had accused the bank of betting against a complex mortgage investment in 2007 -- making $160 million in the process -- while investors lost millions. The settlement would have imposed penalties on Citigroup but allowed it to deny allegations that it misled investors.
Citi said it was reviewing the decision and declined to comment.
The SEC's consent judgment settling the case was filed the same day as its lawsuit against Citigroup, the judge noted.
"It is harder to discern from the limited information before the court what the SEC is getting from this settlement other than a quick headline," the judge wrote.
"In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers," Rakoff said. "Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."
He set a July 16 trial date for the case.