On June 4, the U.S. Court of Appeals for the Second Circuit issued its ruling in Securities and Exchange Commission v. Citigroup Global Markets, No. 11-5227-CV L (2d Cir. Jun. 4, 2014), reversing a decision rejecting a consent judgment filed by the parties and remanding the case to the district court. In its opinion, the Second Circuit provided significant guidance to federal courts and litigants, and reaffirmed the broad discretion afforded to federal agencies in settling regulatory claims.
The dispute arose from a suit filed in October 2011 by the U.S. Securities and Exchange Commission in the U.S. District Court for the Southern District of New York, alleging that Citigroup touted a fund of mortgage-backed securities to investors when it knew, based upon its own projections, that the bottom was falling out of the market. The SEC claimed that Citigroup shorted the fund even while promoting it to investors, realizing $160 million in profits while investors lost nearly $700 million. Shortly after initiating the lawsuit, the SEC filed a proposed consent judgment, which enjoined Citigroup from further wrongdoing and required it to pay $285 million in disgorged profits, interest and penalties.
