The federal Second Circuit Court of Appeals in New York recently heard an appeal in a case that tests a judge’s authority to reject a federal agency’s proposed settlement of a lawsuit.
In this case, a judge rejected a proposed settlement between the federal Securities and Exchange Commission (SEC) and Citigroup. The case involved a $1 billion mortgage bond and allegations the bank deceived customers by selling pools of risky mortgages it knew would decline in value. Clients lost more than $600 million and Citigroup agreed to pay $285 million to settle the case without admitting any wrongdoing. The judge rejected the settlement, calling the amount “pocket change,” and stating that the settlement deprived the public of knowing the truth in an important matter.
Lawyers for both the SEC and Citigroup argued to overturn the judge’s decision. They argued the judge exceeded his authority and did not defer to the SEC’s decision to settle, which conflicts with a century of judicial practice and second guesses the agency’s discretion and policy-based decision. A lawyer representing the judge argued that judges do not automatically approve settlements brought by the SEC and assume they are in the public’s interest.
The appeals court’s decision could have a wide impact as other regulatory agencies often settle enforcement cases with corporations without requiring an admission of wrongdoing.
Here is a recent New York Times article on the decision.
