Appeals court expected to approve SEC settlement with Citigroup

It appears as though the settlement between the Securities and Exchange Commission and Citigroup will survive rejection by a US District Court. The point of contention was a “no-fault” clause that meant Citibank could settle its $285 million fraud case with the SEC without admitting any wrongdoing.

An appeals court ruled on Thursday that a court trial can be delayed while the case is reviewed. While the panel who authorized the delay will not issue a decision on the substance of the case, they offered the settlement their approval, writing, “We have no reason to doubt the SEC’s representation that the settlement it reached is in the public interest. […] We see no basis for any contention that the SEC’s decision to enter into the settlement was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.’”

The District Court criticized the deal based on the ambiguity regarding the merits of the charges filed against Citigroup, and cleared the way for the case to go to trial.

The SEC’s position is that while the settlement does not assign any blame to Citigroup, it nonetheless serves the public interest by avoiding costly, drawn-out litigation.

The case against Citigroup was based on its participation in the subprime mortgage bubble blamed for the 2008 recession. The SEC alleged that Citigroup drew a profit of at least $160 million after lying to investors about the viability of subprime mortgage securities. Those investors ultimately lost over $700 million.

The no-fault clause applies only to civil cases. In fact, the SEC has recently changed its policy on no-fault clauses. Under the new rule, defendants who have admitted liability in criminal proceedings can no longer use “neither admits nor denies” language in settlements with the SEC.

The Washington Post’s report can be found here.

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