New York, November 29 (FinanceEnquiry.com) -U.S. District Judge Jed Rakoff was not comfortable last month with the SEC’s proposed settlement with Citigroup (C) Inc. over the creation and sale of a security that will cost investors $700 million.
Yesterday Rakoff made it official: The proposed $285 million penalty seemed disproportionately small when compared with the losses, Rakoff ruled, and would keep secret crucial details of the risky instrument Citigroup was selling. He said, the proposed settlement didn’t serve the public interest as it didn’t do anything to restore faith in the financial markets. The judge ordered Citigroup and SEC to prepare for a trial in July.
As per SEC, Citigroup stuffed a $1 billion mortgage fund that it sold to investors in 2007 with securities that it believed would fail so that it could bet against its customers and profit when values declined. The fraud, the agency said, was in Citigroup’s falsely telling investor’s that an independent party was choosing the portfolio’s investments. Citigroup made $160 million from the deal and investors lost $700 million.
“We believe the proposed settlement is a fair and reasonable resolution to the SEC’s allegation of negligence, which relates to a five-year-old transaction,” Edward Syler, a Citigroup spokesman, said in a statement. “We also believe the settlement fully complies with long established legal standards. In the event the case is tried, we would present substantial factual and legal defenses to the charges. ”
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