Citigroup Trial Delayed by Appeals Court
A federal appeals court this week granted a delay in the proceedings for the ongoing Securities and Exchange Commission case against Citigroup over securities fraud. The two sides had reached a settlement in the matter in November, but Judge Jed S. Rakoff disallowed the settlement, ordering the SEC to proceed with a trial, because it allowed the bank to pay a $285 million fine without admitting any wrongdoing. The SEC appealed the decision, and asked for a delay in proceedings until the appeal is decided, and the Second Circuit Court of Appeals granted the delay.
The SEC’s case stems from a mortgage-backed security Citigroup sold in 2007. The bank loaded the fund with thousands of risky, subprime mortgages, sold it to investors without revealing the actual risk contained in it, then took a short position on the security, essentially betting that it would fail. The fund did collapse, and Citigroup made $160 million through its short position while the investors that bought the fund lost more than $700 million.
The settlement reached between the SEC and Citi in the case, which was rejected by Rakoff, allowed the bank to pay a $285 million fine without admitting fault in the case. The settlement is similar in that regard to a series of settlements regulators have made with banks since the recession, a trend that Rakoff is looking to change with his ruling. Under the temporary delay granted this week, proceedings in the case were halted until January 17th. During that time, the appeals court will decide whether to grant a longer delay, while the appeal is heard, or grant an expedited appeal.