NEW YORK, N.Y. – A Manhattan judge begrudgingly approved a long-delayed $285 million settlement between Citigroup Inc. and government regulators Tuesday over toxic mortgage securities, but not without a parting shot at the appeals court that forced his hand.
“They who must be obeyed have spoken,” U.S. District Judge Jed S. Rakoff wrote as he said the deal met the requirements the 2nd U.S. Circuit Court of Appeals set in a June decision that found Rakoff had overstepped his authority.
Rakoff rejected the deal in November 2011, saying the settlement was “neither fair, nor reasonable, nor adequate, nor in the public interest.”
The settlement was reached after Citigroup was accused of making $160 million by betting against a complex mortgage investment in 2007 while investors lost millions.
In part, Rakoff had ridiculed the size of the settlement and the fact that it did not require Citigroup to admit wrongdoing. Citigroup routinely reports billions of dollars in profits.
Since Rakoff protested, the SEC has changed its position and sometimes companies have been required to admit wrongdoing.
In June 2013, SEC Chairman Mary Jo White said the SEC would begin demanding admissions of wrongdoing in cases involving serious fraud or harm to investors.
Three months later, JPMorgan Chase & Co., the nation’s largest bank, admitted wrongdoing when it was announced it would pay $920 million for lacking oversight in a $6 billion trading loss that shocked the financial world in 2012.
In its ruling, a three-judge 2nd Circuit panel said there was no basis in law for a judge to require admission of liability before approving a settlement.
The appeals court also instructed Rakoff not to infringe on the SEC’s discretionary authority to choose its terms of settlement.
In approving the deal, Rakoff said he could not say the agreement between the parties was procedurally improper or failed to meet the “very modest standard imposed by the Court of Appeals.”
However, he said he feared that the 2nd Circuit’s decision would mean there will be “no meaningful oversight whatsoever” of similar settlements.
“But it would be a dereliction of duty for this court to seek to evade the dictates of the Court of Appeals,” Rakoff wrote. “That court has now fixed the menu, leaving this court with nothing but sour grapes.”
Messages for comment left with lawyers in the case were not immediately returned.