Citigroup Inc.
's (
C
) settlement deal with the US Securities and Exchange Commission
(SEC) is getting messy. The SEC is appealing against a federal
judge's decision to reject its $285 million settlement of
securities fraud charges with Citi.
The SEC has alleged Citi of misleading investors while selling a
$1 billion fund in 2006 and 2007 that was invested in
mortgage-related securities. Citi was accused of not letting
investors know that it was betting against many of the assets.
Incidentally, Citi neither admitted nor denied wrongdoing.
The federal judge had rejected the settlement in November citing
that it was not fair, reasonable or adequate and not in public
interest. The judge objected to the practice of settlement by the
SEC, with companies showing no admission or denial to the charges
by the defendants. The settlement, which involved loss of over $700
million by investors, has been referred to as a "pocket change" by
the judge.
On the other hand, according to the SEC, the judge committed a
legal error by setting such a new standard, which in turn would
deprive investors of substantial, certain and immediate relief.
The circuit court's judgment will be vital here as future
settlement cases involving SEC would bear the brunt as this
judgment will be set as a precedent.
Post financial crisis, SEC has ramped up its efforts to regulate
institutions and penalize them for wrongdoings and
misrepresentation of facts while selling their investment products.
Besides Citi, others that have also reached settlements or have
been penalized in the past include
Bank of America Corp.
(
BAC
),
Wells Fargo & Co.
(
WFC
) and
Goldman Sachs Group Inc.
(
GS
).
We believe that while such settlements dent the company's
financials to some extent, they also reduce the litigation
overhang.
Citi currently retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating.
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
CITIGROUP INC (
C
): Free Stock Analysis Report
GOLDMAN SACHS (
GS
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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