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SEC says judge committed legal error in Citigroup ruling

Robert Khuzami asks 2nd Circuit to review Judge Jed Rakoff’s rejection of the proposed $285 million settlement

The Securities and Exchange Commission (SEC) is on a mission. Robert Khuzami, director of the SEC’s enforcement division, yesterday announced that he’s petitioning the 2nd Circuit to review U.S. District Judge Jed Rakoff’s rejection of the SEC’s proposed $285 million settlement with Citigroup.

Rakoff, who is known to be a regular critic of the agency, issued a 15-page ruling on Nov. 28 stating that the SEC’s settlement with Citigroup did not reflect whether it was “fair, reasonable, adequate and in the public interest.” He went on to say that the agency “has a duty, inherent in its statutory mission, to see that the truth emerges,” and that the $285 million settlement “is pocket change to any entity as large as Citigroup.”

Khuzami fired back at Rakoff yesterday, saying that he believes “the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits. For this reason, today we filed papers seeking review of the decision in the U.S. Court of Appeals for the Second Circuit.”

Khuzami went on to say that he believes the court was incorrect in requiring an admission of facts as a condition of approving a proposed consent judgment, especially because the SEC provided the court with information laying out the reasoned basis for its conclusions.

“The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country,” Khuzami said. “In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.”

For more, read Khuzami’s full statement.

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