Judge Criticizes SEC for Being Soft on Citigroup

U.S. District Judge Jed S. Rakoff criticized the ""Securities and Exchange Commission's"":http://www.sec.gov/ (SEC) recent proposed settlement with ""Citigroup"":http://www.citigroup.com/citi/homepage/ in a courtroom Wednesday and said he will need time to consider whether he will approve the deal.

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Rakoff questioned several of the settlement's terms, including the agreed-upon monetary penalty.

Citigroup agreed to a $285 million settlement with the SEC after allegations that Citigroup Global Markets composed a collateralized debt obligation (CDO) and then took a proprietary short position against the mortgage

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investments. The CDO defaulted less than a year from its closing in 2007.

Citigroup agreed to a settlement ""without admitting or denying the SEC's allegations,"" according to an announcement on the company's website.

However, Rakoff questioned, ""Why is [no admission of liability] a sensible way to go instead of establishing what the facts are?"" according to ""_American Banker_."":http://www.americanbanker.com/issues/176_218/citigroup-sec-jed-rakoff-collateralized-debt-obligation-hearing-1043961-1.html?pg=1

According to ""_Bloomberg_,"":http://www.bloomberg.com/news/2011-11-09/citigroup-sec-tell-judge-285-million-cdo-accord-is-fair-1-.html when Rakoff asked Citigroup's lawyer, Brad Karp, whether Citigroup admitted to the SEC's allegations, Karp responded, ""We do not admit the allegations."" He continued, ""But if it's any consolation, we don't deny them.""

Rakoff is particularly leery of this condition because the SEC has reached settlements with Citigroup in the past after which the bank allegedly broke the agreements through further security law violations, according to the ""_Wall Street Journal_."":http://online.wsj.com/article/SB10001424052970204224604577028564166670848.html?mod=dist_smartbrief

Rakoff also questioned the settlement amount, which is far less than the amount investors lost-around $600 million, according to the _Journal_.

Rakoff made no decision in Wednesday's hearing and said he will consider the case and issue his opinion later, according to the _Journal_.