A federal judge angrily threw out the proposed $285 million settlement of Citigroup Inc. over the sale of toxic mortgage debt, excoriating the top U.S. market regulator over how it reaches corporate fraud settlements.
The U.S. Securities and Exchange Commission appeared uninterested in actually learning what Citigroup did wrong in agreeing to the settlement, said U.S. District Judge Jed Rakoff in Manhattan. The judge also said the regulatory made an error by asking him to ignore the interests of the public.
"An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous," Rakoff wrote in an opinion dated Monday.
"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," he added.
Rakoff called the settlement "neither reasonable, nor fair, nor adequate, nor in the public interest," and said it was hard to tell whether by settling the SEC was getting more than "a quick headline," and set a trial date of July 16, 2012.
Robert Khuzami, the SEC director of enforcement, said the $285 million sum "reasonably reflects the scope of relief that would be obtained after a successful trial," but without the "risks, delay and resources" required. Khuzami added that Rakoff ignored "decades of established practice throughout federal agencies and decisions of the federal courts."
Citigroup spokeswoman Danielle Romero-Apsilos termed the settlement "a fair and reasonable resolution to the SEC's allegation of negligence."