JURIST - Paper Chase: Federal judge rejects SEC-Citigroup subprime mortgage settlement

[JURIST] A federal judge on Monday rejected a $75 million settlement [JURIST report] reached between Citigroup [corporate website] and the US Securities and Exchange Commission (SEC) [official website] last month to resolve charges of misleading investors about Citigroup's exposure to sub-prime mortgage-related assets. Citigroup represented that its sub-prime exposure was $13 billion or less, when it was more than $50 billion at all times, which SEC officials say contributed to the economic crisis. During the settlement hearing, Judge Ellen Huvelle questioned the SEC's investigation of Citigroup's activities and asked for additional information from both parties on how the final settlement amount was reached. Huvelle also inquired as to why company shareholders were forced to bear the majority of the costs associated with the sanction and the reasoning behind the agency only charging two Citigroup executives when more senior executives were involved. The judge ordered both parties to file briefs [WP report] addressing these questions and scheduled a new hearing for September.

Huvelle's rejection marks the second time this year the federal courts have questioned SEC settlements with banks charged with misleading investors during the 2007 financial crisis. In February, a judge in the US District Court for the Southern District of New York [official website] accepted [JURIST report] a $150 million dollar settlement agreement between the SEC and Bank of America (BOA) [corporate website] after twice rejecting a $33 million settlement [JURIST report] between the two parties. The SEC had charged BOA with misleading investors [complaint, PDF; JURIST report] regarding billions of dollars paid to Merrill Lynch [corporate website] executives during the acquisition of the firm. In his ruling, Judge Jed Rakoff said he was "reluctantly agreeing" to the settlement, which he called "improved, but far from ideal" and "half-baked justice at best."