U.S. appeals court gives Sec-citigroup settlement new life
A federal appeals court said a judge probably overstepped his authority when he blocked a $285-million settlement over toxic mortgage securities after concluding that it was bad policy for a regulatory agency to accept a deal that does not include an admission of liability.
The 2nd U.S. Circuit Court of Appeals in Manhattan on Thursday suspended the effect of Judge Jed Rakoff ’s decision to turn down the settlement between Citigroup Inc. and the Securities and Exchange Commission until it could fully study the case. It said there was a “strong likelihood” that Citigroup and the SEC would succeed in overturning Rakoff ’s ruling.
In doing so, a three-judge appeals panel noted that Rakoff believed it did not serve the public interest for the SEC to let Citigroup settle without admitting liability.
“It is not, however, the proper function of federal courts to dictate policy to executive administrative agencies,” the 2nd Circuit ruling said. “While we are not certain we would go so far as to hold that under no circumstances may courts review an agency decision to settle, the scope of a court’s authority to second-guess an agency’s discretionary and policy-based decision to settle is at best minimal.”
The appeals court said its preliminary review of facts involved in the settlement led it to “see no basis to doubt” that the SEC properly considered numerous factors before reaching the settlement, including the value of the deal, the likelihood of reaching a better settlement, the risks of proceeding to trial and the public interest.
“In short, we conclude it is doubtful whether the court gave the obligatory deference to the SEC’S views in deciding that the settlement was not in the public interest,” the 2nd Circuit said.
Rakoff in November found the deal inadequate and ordered a prompt trial. Both the SEC and Citigroup appealed.
The settlement came after the SEC had accused Citigroup of betting against a complex mortgage investment in 2007. It said the firm made $160 million in the process while investors lost millions.