Now it’s the judge’s turn to face the music.
A federal appeals court yesterday delivered a stern rebuke to Manhattan federal judge Jed Rakoff, who caused a fire storm last year when he rejected a proposed $285 million settlement between federal regulators and Citigroup.
An irate Rakoff shot down the Securities and Exchange Commission’s plan to settle its civil fraud case against Citi without the bank either admitting or denying wrongdoing. Rakoff ordered the SEC and Citi to prepare to go to trial in July.
Yesterday, a three-judge panel for the Second Circuit Court of Appeals indicated that it was leaning toward overturning Rakoff’s decision. The panel issued a stay, postponing the trial until another appeals court panel can hear arguments and rule on the matter.
The decision was sharply critical of Rakoff, saying he may have overstepped his authority. The panel said Rakoff had “no reason to doubt” that the SEC’s settlement was in the best interest of the public, which was one of the judge’s main concerns.
Rakoff blasted the SEC settlement, saying he could not determine whether it was fair or served the public without knowing if the charges against Citi were true. The SEC allows civil defendants to settle charges without admitting or denying guilt.
Rakoff’s decision has weighed on other judges tasked with deciding whether to sign off on similar settlements.
The SEC accused Citigroup of misleading its customers on a $1 billion toxic mortgage product by betting that at least half the assets would fail at the same time it was marketing the product to clients. The SEC said Citigroup earned $160 million on the bets while clients lost billions.