The U.S. Second Circuit Court of Appeals has delayed the start of a civil fraud trial involving the U.S. Securities and Exchange Commission (SEC) and Citigroup and will determine whether a U.S. District Court judge had the authority to order the trial after rejecting a $285 million settlement between the parties.
The Wall Street Journal reports that the appeals court will decide whether U.S. District Judge Jed Rakoff acted appropriately last November when he rejected the settlement, claiming it was ‘neither fair, nor reasonable, nor adequate, nor in the public interest.’ Part of the rejection was based on the SEC's decision to allow Citigroup to accept the settlement without admitting or denying any wrongdoing.
‘[The SEC] had a readily available option to obtain a judgment that established Citigroup's liability, either by trial or settlement, but chose for no good reason to settle for less,’ the appeals court said in its ruling. ‘A still more significant problem is that the court does not appear to have given deference to the SEC's judgment on wholly discretionary matters of policy.’
The trial was set to begin July 16. The SEC accused Citigroup of selling $1 billion in its Class V Funding III mortgage-bond deal without disclosing it had bet against $500 million of the deal's assets.