US Judge rejects SEC’s securities fraud settlement with Citigroup

A US District Court Judge early this week rejected the US Securities and Exchange Commission's (SEC) proposed $285 million securities fraud settlement with Citigroup, the first long-needed rebuke on the SEC arriving at such deals without the offender admitting to any wrongdoing.

In a stinging order, a Manhattan federal Judge Jed Rakoff said the SEC is duty bound to see that the truth emerges. But it is difficult to tell what the regulator is getting from this settlement ''other than a quick headline,'' Rakoff refused to approve the settlement, and ordered for a trial in July.

The SEC alleged that the New York-based bank Securities and Exchange Commission, Citigroup in 2007 sold securities to investors from a $1 billion mortgage that it believed would fail. It later bet against its customers and profited when the securities value declined.

Citigroup made $160 million from the deal, while investors lost $700 million.

Such mortgage securities frauds were made by a number of Wall Street's most profitable banks including Goldman Sachs, Bank of America and other hedge funds just before the onset of the global recession.

Judge Rakoff said that Citigroup was a repeat offender, as it had previously settled other fraud cases with the SEC without admitting or denying any wrongdoing but had agreed not to violate the law in the future.