U.S. Securities & Exchange Commission v. Citigroup Global Markets Inc.
2011 U.S. Dist. LEXIS 135914
S.D.N.Y.2011Background
- SEC filed suit against Citigroup for alleged mortgage-backed securities fraud tied to Class V Funding III, alleging misrepresentation and undisclosed shorting of assets to profit, with investors losing substantial funds.
- Citigroup allegedly misrepresented independent selection of the portfolio while coordinating to include assets with negative projections and to short those assets.
- Citigroup realized approximately $160 million in profits; investors suffered over $700 million in losses.
- Consent Judgment sought injunctive relief, disgorgement of profits plus interest, civil penalty, and three years of internal remedial measures, without Citigroup admitting or denying the allegations.
- SEC alleged the Stoker parallel action supported the public-fraud concerns, but the court had not yet seen proven or admitted facts to support the consent decree.
- Court ultimately concluded it could not approve the Consent Judgment due to lack of a proven factual record and due process concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed Consent Judgment is fair, reasonable, adequate, and in the public interest. | SEC contends standard includes public interest; seeks injunctive relief and remedies. | Citigroup argues deference to SEC; facts are undisclosed due to no admissions. | No; court cannot approve without a factual basis. |
| Does the lack of admissions/denials undermine the evidentiary basis for the injunction? | SEC relies on consent without admissions to secure relief. | Citigroup contends no admissions should not prevent relief due to deference. | No; absence of admissions bars meaningful judicial assessment. |
| Can public-interest considerations be resolved when the record lacks proven facts? | SEC asserts public interest supported by injunctive relief. | Citigroup emphasizes deference and nonadmission posture. | No; public interest requires factual grounding. |
| Is the SEC’s no-admission policy compatible with due process and First Amendment concerns? | Policy allows settlements without admissions in regulatory actions. | Policy serves efficiency but lacks fact-based justification. | Court finds policy problematic for ensuring transparency and accountability. |
| Should the case be approved or consolidated for trial with the Stoker action? | Not explicitly stated beyond procedural context. | Not applicable. | Court consolidates and sets trial for July 16, 2012; declines to approve the Consent Judgment. |
Key Cases Cited
- Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir.1976) (consent judgments lacking admissions have no evidentiary value or collateral estoppel effect)
- Randolph v. SEC, 736 F.2d 525 (9th Cir.1984) (public interest required in consent decrees)
- Trucking Employers, Inc. v. United States, 561 F.2d 313 (D.C.Cir.1977) (court must assess overall fairness to beneficiaries and public interest)
- Bank of America Corp. v. SEC (Bank of America I), 653 F.Supp.2d 507 (S.D.N.Y.2009) (standard: fair, reasonable, adequate, and in the public interest)
- Bank of America Corp. v. SEC (Bank of America II), 2010 WL 624581 (S.D.N.Y.2010) (reiterated public-interest scrutiny and fairness standards)
- SEC v. Vitesse Semiconductor Corp., 771 F.Supp.2d 304 (S.D.N.Y.2011) (discussed standards of review for consent judgments)
- Kokkonen v. Guardian Life Insurance Co., 511 U.S. 375 (Supreme Court 1994) (district court discretion on enforcing settlements)