In a strongly worded November 28, 2011 opinion (here), Southern District of New York Judge Jed Rakoff rejected the proposed $285 million settlement of the enforcement action that the SEC brought against Citigroup Capital Markets. But while he emphatically rejected the proposed settlement, his opinion may also suggest how the SEC might salvage this situation without a trial and even how it might structure settlements in the future in order to avoid the kind of blistering criticism that Rakoff administered in his November 28 opinion.
In October 2011, the SEC filed a civil enforcement action against Citigroup in the Southern District of New York and simultaneously filed a proposed Consent Judgment in which Citigroup offered to pay a total of $285 million (consisting of a disgorgement of profits of $160 million, plus $30 million in interest, and a civil penalty of $95 million). The complaint related to a billion-dollar fund that Citigroup created that allowed the company "to dump some dubious assets on misinformed investors." The fund was marketed as consisting of attractive assets, whereas the fund was arranged to include a "substantial percentage of negatively projected assets." Citigroup had then taken a substantial short position in the assets. Citigroup realized profits of $160 million, while investors lost more than $700 million.
Because Citigroup had agreed to the proposed settlement and Consent Judgment "without admitting or denying the allegations in the complaint," Judge Rakoff had in an October 27, 2011 opinion raised a number of pointed questions about the proposed settlement (about which refer here).
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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