By Kara Scannell in New York
The Securities and Exchange Commission defended its $285m settlement with Citigroup as fair and reasonable and said the federal judge overseeing the case should defer to the agency?s judgment.
The position, made in court papers, comes ahead of Wednesday?s hearing when lawyers for the SEC and Citigroup will meet to convince Judge Jed Rakoff to approve the pact.
Last month, the SEC announced the settlement with Citigroup alleging the bank misled investors who bought a $1bn mortgage-linked security by not informing them that the bank helped select a portion of the portfolio and bet against it. The SEC also charged Brian Stoker, a former Citigroup employee, who is fighting the allegations. Credit Suisse, the collateral manager on the transaction, and one of its former employees settled with the agency.
Mr Rakoff outlined a series of questions he wanted the SEC to address, including its policy to allow defendants to settle without admitting or denying wrongdoing.
In the filing, the SEC said ?proposed consent decrees not requiring an admission of liability by the defendant, far from being suspect, are the norm and to be expected?. The SEC noted that the justice department settles civil actions under the same standard and that the SEC goes further than other government agencies by not allowing the defendant to deny the allegations.
The SEC said its settlement was ?fair, adequate and reasonable? and it was entitled to a ?presumption of reasonableness?. The agency said the settlement reflects both what the agency would probably win at trial, the risks of going to trial, and it frees SEC staff to investigate other matters.
Citing other judicial opinions, the SEC said courts have ruled that it is not a judge?s job to resolve factual disputes and judges should defer to governmental agencies.
Last month, in a order scheduling the hearing, Mr Rakoff questioned why other individuals were not charged and asked the SEC why the $95m penalty was much less than the $535m paid by Goldman Sachs in connection with its sale of a mortgage security.
The SEC said that, unlike in the Goldman case, it did not allege that Citigroup intentionally misled investors.
The SEC ?did not uncover evidence to support a conclusion that there was widespread illicit conduct by individuals throughout Citigroup? and noted its decision not to pursue additional charges was ?committed to an agency?s absolute discretion?.
? The Financial Times Limited 2011