Federal Appeals Court Says Judge Erred in Blocking SEC, Citigroup Settlement -- Update

By Dow Jones Business News, 
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By Christopher M. Matthews

A federal appeals court overturned a lower court's decision to reject a $285 million civil settlement between the U.S. Securities and Exchange Commission and Citigroup Inc., saying Tuesday the settlement was in the "public interest."

The U.S. Second Circuit Court of Appeals said in an opinion Tuesday that U.S. District Judge Jed Rakoff, who had rejected the SEC-Citigroup settlement in 2011, had shown "an abuse of discretion" in blocking the deal.

The SEC had accused the bank of selling investors slices of a $1 billion mortgage-bond deal called Class V Funding III, without disclosing it was betting against $500 million of those assets.

Judge Rakoff, a well-known judge in Manhattan's federal court, rejected the settlement, in part because he objected to a decades-old practice by the SEC in which Citigroup was allowed to neither admit nor deny wrongdoing as part of the deal. A deputy for Judge Rakoff declined to comment.

On Tuesday, the Second Circuit said the SEC should be given wide deference in determining whether or not to settle a case or take it to trial.

"It is an abuse of discretion to require, as the district court did here, that the S.E.C. establish the 'truth' of the allegations against a settling party as a condition for approving the consent decrees," the three-judge panel wrote in a 28-page opinion.

A Citigroup spokeswoman declined to comment.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

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  06-04-141118ET
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