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Citigroup Settles SEC Fraud Complaint for $285 Million

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By Stephanie Rabiner, Esq. on October 25, 2011 6:47 AM

The Securities & Exchange Commission announced a $285 million Citigroup settlement last week, putting an end to a civil suit brought by the agency.

The amount falls behind settlements reached with Goldman Sachs and JPMorgan--the only other major banking institutions sued by the SEC. Approximately $190 million will be used to refund investors, while the remaining $95 million represents a fine.

These numbers are subject to change, as the settlement must be approved by U.S. District Judge Jed S. Rakoff.

Charges against Citigroup stem from a $1 billion portfolio of mortgage-related investments. Investors were allegedly led to believe that the assets were chosen by outsiders even though Citigroup was involved. The company then bet against the portfolio, allowing it to profit if the portfolio's value declined.

Citigroup has issued a statement reminding the public that it was not charged with "intentional or reckless misconduct," reports the New York Times. The company also reached the agreement "without admitting or denying wrongdoing."

This latter phrase may pose significant problems when the Citigroup settlement reaches Judge Rakoff.

Judge Rakoff has been highly critical of the SEC, even rejecting a $33 million settlement with Bank of America. In March, he aimed his ire at the above language, according to the Times' DealBook.

The use of the phrase "without admitting or denying wrongdoing" diminishes the public's trust in the agency. The SEC is saying, "Although we claim that these defendants have done terrible things, they refuse to admit it and we do not propose to prove it, but will simply resort to gagging their right to deny it," he wrote.

These are strong words, and it's quite possible that Judge Rakoff will reject the Citigroup settlement and give them weight.

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