Citigroup's $285 million settlement with the Securities and Exchange Commission over a nonprime MBS investment was rejected Monday by a federal judge who said he hadn't been given enough facts to approve it.
U.S. District Judge Jed Rakoff in Manhattan officially rejected the settlement in an opinion released Monday and set a trial date. Judge Rakoff criticized the agency's practice of letting financial institutions settle without admitting or denying liability.
Citigroup – the nation's fifth largest mortgage firm and once a top ranked subprime securitizer – last month agreed to settle a claim by the SEC that it misled investors in a $1 billion collateralized debt obligation backed by subprime MBS.
Investors who bought the bonds lost about $700 million. (The SEC sued the bank, claiming it misled investors about the CDO. At the same time it was selling the bond to investors, Citigroup took a short position in many of the underlying assets, according to the agency.)
A civil trial could establish conclusions that investors could use against Citigroup, resulting in additional claims against the bank.
"In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth," Rakoff wrote in the opinion. He added that the proposed settlement is "neither fair, nor reasonable, nor adequate, nor in the public interest.”
A spokeswoman for Citigroup declined to comment at this time.
