SEC Statement on Citigroup Case; Court Rejected a $285M Settlement

The Securities and Exchange Commission'sDirector of the Division of Enforcement, Robert Khuzami, today made thefollowing statement on the Citigroup case: Last month, a federal district court declined to approve a consent judgmentbecause, in its view, the underlying allegations were 'unsupported by anyproven or acknowledged facts.' As a result, the court rejected a $285million settlement between the SEC and Citigroup that reasonably reflectedthe relief the SEC would likely have obtained if it prevailed at trial. We believe the district court committed legal error by announcing a new andunprecedented standard that inadvertently harms investors by depriving themof substantial, certain and immediate benefits. For this reason, today wefiled papers seeking review of the decision in the U.S. Court of Appeals forthe Second Circuit. We believe the court was incorrect in requiring an admission of facts - or atrial - as a condition of approving a proposed consent judgment,particularly where the agency provided the court with information laying outthe reasoned basis for its conclusions. Indeed, in the case againstCitigroup, the SEC filed suit after a thorough investigation, the findingsof which were described in extensive detail in a 21-page complaint. The court's new standard is at odds with decades of court decisions thathave upheld similar settlements by federal and state agencies across thecountry. In fact, courts have routinely approved settlements in which adefendant does not admit or even expressly denies liability, exactly becauseof the benefits that settlements provide. In cases such as this, a settlement puts money back in the pockets of harmedinvestors without years of courtroom delay and without the twin risks oflosing at trial or winning but recovering less than the settlement amount -risks that always exist no matter how strong the evidence is in a particularcase. Based on a careful balancing of these risks and benefits, settling onfavorable terms even without an admission serves investors, includinginvestors victimized by other frauds. That is due to the fact that otherfrauds might never be investigated or be investigated more slowly becauselimited agency resources are tied up in litigating a case that could havebeen resolved. In contrast, the new standard adopted by the court could in practical termspress the SEC to trial in many more instances, likely resulting in fewercases overall and less money being returned to investors. To be clear, we are fully prepared to refuse to settle and proceed to trialwhen proposed settlements fail to achieve the right outcome for investors.For example, in the cases that the SEC identifies as core financial crisiscases, we filed unsettled actions against 40 of the 55 (70 percent) of theindividuals charged - including the action filed against Brian Stoker inthis matter. Similarly, we filed unsettled actions against 11 of the 26 (42percent) of the entities we charged - eight of which we did not litigateagainst because they were bankrupt, defunct or no longer operating.