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The Week in Securities Litigation: SEC Makes 3 Unusual Moves


The SEC took three unusual steps this week. First, in a high stakes move, the agency appealed the refusal of Judge Rakoff to approve its proposed settlement in a market crisis case with Citigroup. A loss in the Second Circuit could substantially injure the enforcement program. Second, the agency brought an action against SIPIC for failing to institute liquidation proceedings with respect to the Stanford Ponzi scheme. Finally, the SEC brought an action against a private company claiming that it defrauded employees who sold shares in their company back to their employer.

The Commission

SEC v. Citigroup Global Markets, Inc. Case No. 11 Civ 7387 (S.D.N.Y.): The Commission appealed the determination by District Court Judge Rakoff to not approve the proposed settlement in this case. The underlying action is the Commission's latest market crisis case which is discussed here. Judge Rakoff declined to approve the proposed settlement noting that he did not have sufficient facts on which evaluate the matter. While the Court was critical in its order regarding the fact that the settlement was based on neither admitting nor denying the allegations in the complaint, central to the Court's conclusion was its view that there was a fundamental mismatch between the allegations of the complaint which alleged an intentional fraud and its charging sections which were based on negligence and the proposed settlement which was bassed on a small fine when viewed in the context of similar cases without offering any explanation for the apparent mismatch. In proceedings before Judge Rakoff the Commission chose not to offer an explanation. Rather, it argued essentially that the Court had a limited role and should defer to the decision of the agency.

SEC v. Securities Investor Protection Corporation:The Commission filed an application to compel SIPIC to begin the liquidation of accounts related to the Stanford Group Company. Previously, the SEC filed an action against Mr. Stanford and his companies. In that proceeding the court ordered that Stanford Group be placed into receivership. Despite a request from the Commission that SIPIC initiate a liquidation in view of the customer accounts involved, it failed to take action The application is pending.

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For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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