The Citigroup vs US Securities and Exchange Commission (SEC) settlement, and the subsequent court decision rejecting it, has ample material for India?s Sebi and courts to learn from. First, some context. Before the recession struck, Citigroup had started a $1 billion security and had attracted many investors. What it failed to mention to them was that the bank had helped select some of the assets included in the security and had bet against them. Subsequently, the security went bust, resulting in the investors losing more than $700mn, while the bank itself made around $160mn in fees. SEC quickly smelt wrongdoing, and got on Citigroup?s case. The latter agreed to a $285mn settlement with SEC, which is what a New York district judge, Jed Rakoff, recently rejected. The judge objected to two main aspects of the case. First, he said the settlement was too small, considering the amount the investors lost and the bank?s own considerable coffers. Second, he said that the prevailing practice of SEC, wherein a defendant company could settle with SEC without admitting guilt or wrongdoing, wasn?t in the best interests of the public. Whether he was right or wrong is up to the American judiciary?that is, it?s not compulsory for other US judges to follow Rakoff?s lead in similar settlements; they can do so if they choose to.
The case, however, throws light on several deficiencies in India?s approach to white collar crime. The straightforward and clear manner in which SEC handled its case against PwC was in sharp contrast to Sebi?s cluttered approach, and the Citigroup case reiterates that contrast. Whether the settlement was enough or not, SEC was quick to find and penalise malpractice. The speed with which the courts moved is also worth noting; they can do so only if the regulatory agencies provide relevant evidence and nothing more that clouds the issue?something Indian agencies excel at.