Citigroup headed to trial

Citigroup is headed to trial over SEC allegations that it dumped dubious assets onto unwitting investors. This comes after a U.S. federal judge refused to approve a $285 million settlement between the company and the regulator.

U.S. District Judge Jed Rakoff said he was not given enough information to approve the settlement, and ordered that the matter be sent to trial. He ordered that the trial be consolidated that of Brian Stoker, former director in Citigroup’s CDO structuring group.

“In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth,” Rakoff wrote in his decision. “The S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

The SEC alleges that Citigroup hand-picked investments for which it had a negative outlook, placed them in a new fund and sold the fund to unwitting investors. At the same time, Citigroup is alleged to have taken short positions against the same securities.

In the end, the fund investors lost $700 million, while Citigroup profited to the tune of $170 million.

Read Judge Rakoff’s decision.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.