Citigroup's $75 million settlement with SEC is rejected by Judge

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, August 16, 2010; 7:32 PM

A federal judge on Monday refused to accept a $75 million settlement between the Securities and Exchange Commission and Citigroup, the second time in a year that the agency's attempt to sanction a major bank was foiled by a judge with questions about the appropriateness of the agreement.

Judge Ellen S. Huvelle of the U.S. District Court of the District of Columbia raised questions during a hearing Monday about why the SEC chose to penalize Citigroup financially when it's the company's shareholders who will ultimately bear the price of the sanction, according to lawyers who were present. She also asked why the agency decided to charge only two executives with wrongdoing when other more senior executives were involved with Citigroup's actions, the lawyers said.

Huvelle demanded more information from SEC and Citigroup and scheduled another hearing for Sept. 24.

Last month, the SEC charged Citigroup with misleading investors about nearly $40 billion of its holdings in subprime mortgage investments in 2007.

The SEC, in a separate administrative venue, charged former chief financial officer Gary L. Crittenden and former investor relations head Arthur Tildesley with concealing important information from investors in regulatory disclosures in the second and third quarters of 2007.

Citigroup agreed to pay $75 million to settle the charges while Crittenden agreed to pay $100,000 and Tildesley agreed to pay $80,000. None of the parties admitted or denied wrongdoing.

Huvelle's decision to ask for more information on the settlement recalls federal judge Jed S. Rakoff's rejection of a similar settlement between the SEC and Bank of America last year. Bank of America faced similar charges as Citigroup -- misleading investors about important information related to its financial exposure.

In rejecting the agency's $33 million settlement with Bank of America, U.S. District Judge Jed S. Rakoff of the Southern District of New York was incredulous about the terms, saying the settlement suggested "a rather cynical relationship between the parties."

Later, the SEC added new charges and nearly quintupled the fine to gain Rakoff's half-hearted approval.

In the Citigroup case, the SEC told Huvelle that it had done a broad investigation into the company and performed an economic analysis that led to the $75 million penalty. The agency said no more serious charge was brought because of a breakdown at Citigroup that led the firm to unintentionally withhold crucial information from investors, according to lawyers who attended the hearing.

Goldman Sachs, by contrast, faced a more serious fraud charge earlier this year when the SEC accused it of intentionally misleading clients about an investment the firm was selling.

Through spokesmen, the SEC and Citi said they would provide the judge with all the requested information.

Matthew Miller, a lawyer at Cuneo, Gilbert and LaDuca, representing a shareholder who sued Citigroup executives for the losses incurred by the firm, praised the judge's action.

"There's very little explanation as to why these two individuals who are named in a related administrative complaint are the only two people responsible for the conduct at issue and why there are no more senior executives involved in this proceeding," he said.

Grandpa

Darn good question Judge Huvelle, why did the SEC decide to charge only two executives with wrongdoing when other more senior executives were involved with Citigroup's actions? Maybe you could also ask why once again, "none of the parties admitted or denied wrongdoing"? How is it that Wall Street pulls out an endless supply of get out of jail free cards while simply paying SEC "I did not do anything wrong fines"?