"The S.E.C.'s policy – 'hallowed by history, but not by reason,' Mr. Rakoff wrote – creates substantial potential for abuse, the judge said, because 'it asks the court to employ its power and assert its authority when it does not know the facts.'
"'An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous,' Mr. Rakoff wrote in the case, S.E.C. v. Citigroup Global Markets. '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.'
"The S.E.C. in particular, he added, 'has a duty, inherent in its statutory mission, to see that the truth emerges.'"
"The deal would have imposed penalties on Citigroup (C) even as it allowed the company to deny allegations that it misled investors on a complex mortgage investment. The SEC accused the bank of betting against the investment in 2007 and making $160 million, while investors lost millions."
Those accusations, however, were not presented as fact. Rakoff set a July 16 trial date.