Tuesday, November 29, 2011
Here is the response of Robert Khuzami, SEC Director of Enforcement, to Judge Rakoff's rejection of the Citigroup settlement:
While we respect the court's ruling, we believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial.
The court's criticism that the settlement does not require an 'admission' to wrongful conduct disregards the fact that obtaining disgorgement, monetary penalties, and mandatory business reforms may significantly outweigh the absence of an admission when that relief is obtained promptly and without the risks, delay, and resources required at trial. It also ignores decades of established practice throughout federal agencies and decisions of the federal courts. Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court.
The settlement provisions cited by the court have been included in settlements repeatedly approved for good reason by federal courts across the country — including district courts in New York in cases involving similar misconduct.
We also believe that the complaint fully and accurately sets forth the facts that support our claims in this case as well as the basis for the proposed settlement. These are not 'mere' allegations, but the reasoned conclusions of the federal agency responsible for the enforcement of the securities laws after a thorough and careful investigation of the facts.
Finally, although the court questions the amount of relief obtained, it overlooks the fact that securities law generally limits the disgorgement amount the SEC can recover to Citigroup's ill-gotten gains, plus a penalty in an amount up to a defendant's gain. It was for this reason that we sought to recover close to $300 million — all of which we intended to deliver to harmed investors. The SEC does not currently have statutory authority to recover investor losses.
We will continue to review the court's ruling and take those steps that best serve the interests of investors.