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'An Extraordinary Battle': Judge Claims SEC Misled Court In Citi Case

A man walks by a Citibank branch at the U.S. bank Citigroup world headquarters on Park Avenue, in New York in 2008. i i

A man walks by a Citibank branch at the U.S. bank Citigroup world headquarters on Park Avenue, in New York in 2008. Emmanuel Dunand/AFP/Getty Images hide caption

itoggle caption Emmanuel Dunand/AFP/Getty Images
A man walks by a Citibank branch at the U.S. bank Citigroup world headquarters on Park Avenue, in New York in 2008.

A man walks by a Citibank branch at the U.S. bank Citigroup world headquarters on Park Avenue, in New York in 2008.

Emmanuel Dunand/AFP/Getty Images

U.S. District Judge Jed S. Rakoff ruffled feathers back in November when he refused to approve a settlement between the Securities and Exchange Commision and Citigroup.

As we reported, Rakoff threw out the $285 million deal which would have allowed Citigroup to neither admit nor deny wrongdoing in a mortgage derivatives deal. That kind of arrangement has become customary, but the judge said it obscured facts and failed to inform the public so he said he wouldn't OK a deal without any "proven or admitted facts"

The standoff erupted into a bit of legal drama, yesterday, with the SEC claiming Rakoff has grossly overstepped his bounds and the judge claiming that Citigroup misled the court. Here's how The Washington Post frames it:

"The judge and the SEC are locked in an extraordinary battle over how the government should police financial fraud, and just when it seemed that the conflict could not get more contentious, Thursday's development added a dimension."

In truth, Thursday's development is more entertaining than it is substantive. Essentially, the S.E.C. tried make an end run around Rakoff by asking the U.S. Court of Appeals for the 2nd Circuit to throw out Rakoff's judgement. Now the Washington Post says asking another judge to issue a "writ of mandamus" is "generally reserved for cases in which a judge has grossly overstepped his bounds." The Post adds, "such a direct and personal challenge to a judge is far from a routine gambit."

Needless to say Rakoff was not happy, especially because he said the SEC and Citigroup both failed to tell him they were challenging his ruling, instead letting him toil through the Christmas holiday in an effort to move the case along. Rakoff even issued a supplemental order detailing his displeasure. The New York Times describes it:

"He said that the S.E.C. had the chance and the obligation to tell him about its emergency motion to the Court of Appeals after it was filed on Tuesday, because the commission and Citigroup had a telephone conference call with Judge Rakoff about his management of the case. In that conversation, Citigroup asked Judge Rakoff to be allowed to file extra pages in its coming motion to dismiss the case.

"By not informing him of its appeals court plea, 'there appears to have been a similar misleading of this court,' the judge wrote, because both the S.E.C. and Citigroup 'held back from this court material information it needed to do its job.'

"The judge even complained that he had spent the Christmas holiday considering the stay request and drafting an opinion in order to speed the case along."

So where does the case stand? The Second Circuit will hold a hearing on Jan. 17, but in that same supplemental order, The Wall Street Journal explains, Rakoff argued "the agency doesn't have a legal basis for an appeal in the first place."

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