SEC Files Appeal in Citigroup Case

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Tatiana Rodriguez | Bloomberg Law

SEC Press Release No. PR-2011-265 (Dec. 15, 2011)

The Securities and Exchange Commission (SEC) filed an appeal in SEC v. Citigroup Global Markets Inc. with the U.S. Court of Appeals for the Second Circuit, challenging Federal District Judge Jed S. Rakoff's well-publicized recent rejection of a $258 million settlement agreement between the SEC and Citigroup Global Markets Inc. (Citigroup). The case involves the SEC's allegations that Citigroup negligently made misrepresentations in connection with the sale of collateral debt obligations. The Director of the SEC's Division of Enforcement, Robert Khuzami, issued a statement elaborating on the SEC’s reasons for filing the appeal. He stated that the SEC believes the district court made a "legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits." Further, the SEC believes that the court was "incorrect in requiring an admission of facts—or a trial—as a condition of approving a proposed consent judgment." Khuzami explained that the new standard adopted by the court is at odds with decades of precedent upholding similar agency settlements. Moreover, it would force the SEC into more trials, which in turn, would compel the agency to allocate resources away from new investigations, resulting in fewer cases and fewer recoveries by the SEC. Khuzami further explained that settlement allows the SEC to avert the "twin risks of losing at trial or winning but recovering less than the settlement amount." He noted, however, that the SEC will move forward with trial where a settlement does not constitute the best outcome for investors. He provided the following information with respect to the SEC's core financial credit cases:
  • The SEC filed unsettled actions against 40 of the 55 (70 percent) individuals charged; and
  • The SEC filed unsettled actions against 11 of the 26 (42 percent) entities charged.
Khuzami concluded by discussing the statutory limitations in imposing penalties and noting that the size of the defendant does not play a role in the scope of the penalty imposed. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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