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Federal Judge Rejects Citi’s $75M Settlement with SEC

A federal judge is refusing to sanction an agreement between ""Citigroup"":http://www.citigroup.com and the ""Securities and Exchange Commission"":http://www.sec.gov (SEC) to settle charges brought against the New York bank that it misled investors about its exposure to subprime home loans.


The SEC alleged that after repeated investor inquiries, Citi continued to make false statements in earnings calls and public filings about the extent of its holdings of assets backed by risky subprime mortgages, even as the


subprime market began to unravel in 2007. Citi ""agreed late last month"":http://dsnews.comarticles/citi-charged-with-misleading-investors-about-exposure-to-subprime-mortgages-2010-07-29 to pay a $75 million penalty to settle the charges.

But at a hearing on the settlement this week, Judge Ellen S. Huvelle of the U.S. District Court for the District of Columbia would not give her stamp of approval to the terms of the agreement.

Judge Huvelle reportedly asked why the company's shareholders â€" some of whom were the ones misled by the financial giant â€" must pay for the institution's transgressions.

She raised questions about the SEC's investigation and asked why only two Citi executives had been charged, when the SEC said in its complaint that ""senior management"" had knowledge of the deception.

""Why would I find this fair and reasonable?"" Judge Huvelle said. ""You expect the court to rubber-stamp, but we can't.""

She has ordered both the SEC and Citigroup to provide additional records and information. A new hearing has been set for mid-September.