Bloomberg News

Citigroup Suit Should Be Put on Hold During Appeal, SEC Says

December 29, 2011

(Updates with Citigroup comment in the sixth paragraph.)

Dec. 27 (Bloomberg) -- The U.S. Securities and Exchange Commission asked a federal appeals court to put an emergency hold on its lawsuit against Citigroup Inc. over mortgage-backed securities, and to expedite its appeal of a judge’s rejection of a $285 million settlement in the case.

Citigroup consented to the requests, the SEC said in a filing today with the U.S. Court of Appeals in New York. The agency is challenging U.S. District Judge Jed Rakoff’s refusal last month to approve an accord resolving claims that New York- based Citigroup misled investors in a $1 billion financial product linked to risky mortgages. It said halting the case was necessary because Rakoff told Citigroup to respond to the SEC’s complaint next week.

“The commission seeks a stay on an emergency basis because the Jan. 3 deadline for Citigroup to answer creates an exigency that threatens the commission with additional irreparable harm,” the regulator said in court papers.

In his Nov. 28 ruling, Rakoff criticized the agency’s practice of settling without requiring the subject of the allegations to admit wrongdoing. The Manhattan judge said the Citigroup settlement didn’t provide him with “any proven or admitted facts” to inform his judgment.

Agency Resources

The SEC said it wanted to preserve agency resources by putting the case on hold while the appeals court considers Rakoff’s ruling.

“We respectfully disagree with the court’s ruling and believe the settlement fully complies with long-established legal standards,” Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in an e-mailed statement. “In the event the case is tried, we would present substantial factual and legal defenses to the charges.”

Rakoff, a former federal prosecutor and civil litigator, has previously criticized the SEC’s practice of allowing financial institutions to settle enforcement actions without admitting or denying the agency’s allegations. In 2009, he rejected a $33 million agreement between the SEC and Bank of America Corp.

The commission said earlier this month that it was unaware any court has ever before required that “proven or acknowledged facts” be established as a condition to the approval of a proposed consent judgment submitted by a federal government agency.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second (New York).

--With assistance from Patricia Hurtado in New York. Editors: Mary Romano, David E. Rovella

To contact the reporter on this story: Thom Weidlich in Manhattan federal court at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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