Citigroup Inc.’s $285 million mortgage-securities deal with the Securities and Exchange Commission was revived as an appeals court assailed a judge’s demand for more evidence backing up the regulator’s claims.
The bank challenged U.S. District Judge Jed Rakoff’s refusal in 2011 to approve the accord, which would resolve SEC claims that the bank misled investors in a $1 billion financial product linked to risky mortgages, costing investors more than $600 million.
Mr. Rakoff, who has also criticized the agency practice of not requiring an admission of wrongdoing in settlements, said the parties didn’t give him “any proven or admitted facts” he could use to gauge the deal’s fairness. The court Wednesday affirmed the SEC’s wide purview to tailor settlements as it sees fit.
“It is an abuse of discretion to require, as the district court did here, that the SEC establish the ‘truth’ of the allegations against a settling party,” said the 2nd U.S. Circuit Court of Appeals in New York. The unanimous three-judge panel sent the case back to Mr. Rakoff, ordering him to review it again.
While the appeals court said Mr. Rakoff probably had enough facts before him to approve the accord, he may request additional information before ruling.
The settlement stems from SEC allegations that Citigroup structured and sold collateralized debt obligations in 2007 without telling investors that it helped pick about half of the underlying assets, and that it was betting they would decline in value by taking a short position.
Danielle Romero-Apsilos, a spokeswoman for Citigroup, didn’t return a call seeking comment on the ruling. Christine D’Amico, a spokeswoman for the SEC, declined to immediately comment.