SEC Settlements: Justice Served Or Hush Money?

"[T]he S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges." -- Judge Jed Rakoff, U.S. District Court[1]
Dec 27, 2011 10:50 AM ET
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Posted by Reynard Loki

The Securities and Exchange Commission (SEC) often settles claims out of court, a relatively clean method of retribution and compensation that allows the public to avoid paying for a lengthy trial, the federal agency to say it did its job and the company under fire to escape not only litigation, but having to admit to its shareholders that it committed any wrongdoing.


But last month, this time-honored technique of setting right the balance of justice in the financial world was hit by a judicial bomb when Judge Jed S. Rakoff of the United States District Court in Manhattan dismissed a settlement of USD 285 million between Citigroup and the SEC to resolve allegations of fraud arising from the handling of a USD 1 billion mortgage fund.

The agency claims the fund was designed to fail so that the bank could bet against its own customers, reaping a profit when its value eventually declined. The failure of the fund resulted in a USD 700-million loss for investors and a USD 160-million profit for Citigroup. To put these figures into context, the bank reported a Q3 net income of USD 3.8 billion (compared to USD 2.2 billion for the same period last year).[2][3].

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Reynard is a Justmeans staff writer for Sustainable Finance and Corporate Social Responsibility. A former media executive with 15 years experience in the private and non-profit sectors, Reynard is the co-founder of MomenTech, a New York-based experimental production studio that explores transnational progressivism, neo-nomadism, post-humanism and futurism. He is also author of the blog 13.7 Billion Years, covering cosmology, biodiversity, animal welfare, conservation and ethical consumption. He is currently developing the Underground Desert Living Unit (UDLU), a sustainable single-family dwelling envisioned as a potential adaptation response to the future loss of human habitat due to the effects of anthropogenic climate change. Reynard is also a contributing author of "Biomes and Ecosystems," a comprehensive reference encyclopedia of the Earth's key biological and geographic classifications, to be published by Salem Press in 2013.