A US federal appeals court Wednesday ruled that a lower court judge abused his discretion when he blocked a settlement between Citigroup and regulators over alleged mortgage-securities fraud. The appeals court overturned a November 2011 decision by US District Judge Jed Rakoff refusing to approve a $285 million settlement of US allegations that Citigroup misrepresented its role in preparing mortgage-backed securities in which investors lost millions.
Rakoff had sharply criticised the Securities and Exchange Commission for agreeing to accept a small fine for the alleged wrongdoing that went to the heart of the 2008 financial crisis. In particular, he took issue with the settlement for not requiring Citi to admit or deny the allegations.
But the appeals court rejected Rakoff's conclusion, saying the SEC should be afforded "significant deference" in determining whether a deal serves the public interest. The SEC's decision to settle rests in part on the agency's allocation of its enforcement budget, the appeals court said. The appeals court decision sent the case back to Rakoff, who has publicly criticised regulators for a meek response to Wall Street wrongdoing that led to the housing bust. In the Citi case, Rakoff wrote that approving the deal would rubber-stamp an agreement that might not be in the public interest. "In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our lives, there is an overriding public interest in knowing the truth," he said.
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