Earlier this fall, the Securities and Exchange Commission announced a whopping $285 million settlement with Citigroup over allegations that the bank misled investors in a 2007 mortgage derivatives deal. But that triumph was short-lived, as a judge has decided to block the settlement because of a standard settlement condition wherein the bank is allowed to close the case without admitting guilt or denying the allegations.
The U.S. District Court judge in Manhattan said that the settlement was “neither fair, nor reasonable, nor adequate, nor in the public interest” because without an admission of guilt or assertion of innocence, it’s impossible for the court to rule on the settlement.
As any regular reader of Consumerist knows, it’s common for a condition in settlements that the accused company does not have to publicly admit wrongdoing, so long as it agrees to stop putting up a defense.
The reasoning behind this is that, since no facts are introduced into evidence, there is nothing on the record for future plaintiffs to use in their cases against the company.
But, explains the judge, asking the court to rule on a settlement in a case with zero evidence, “asks the court to employ its power and assert its authority when it does not know the facts.”
The case at hand involves allegations that Citi not only didn’t disclose to fund investors that the bank — and not a third party — picked the securities that made up the fund, but that Citi also bet against those same investments. It’s alleged that Citi made $160 million in profits while investors lost $700, but none of that was ever proven in court because the SEC settlement was done out of court.
The judge says that the SEC “has a duty, inherent in its statutory mission, to see that the truth emerges… In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.”
Thanks to Harper for the tip!