After keeping the parties’ lawyers on pins and needles for over a month, Washington, D.C., federal district court Judge Ellen Segal Huvelle said Friday afternoon that she will accept — with a few preconditions — Citigroup’s $75 million settlement with the Securities and Exchange Commission over the bank’s inadequate reporting of its exposure to subprime mortgage debt.
As we’ve previously reported, Huvelle channeled her inner Rakoff in August, refusing to “rubber stamp” the settlement without more information. Specifically, she wanted to know how the SEC had come up with the $75 million figure and why the agency had singled out only two Citigroup executives, Gary Crittenden, the bank’s then-chief financial officer, and Arthur Tildesley Jr., then-director of investor relations. Out of all the Citi execs involved in shielding the bank’s $40 billion in subprime exposure from shareholders, “You’ve focused on two individuals and I can’t for the life of me figure out why,” Huvelle complained to the SEC.
The Wall Street Journal reports that Huvelle told lawyers for Citi and the SEC at a hearing on Friday that she would “ultimately approve” the deal, provided that the SEC certifies Citigroup’s revamped disclosure procedures and that the $75 million is used for compensating shareholders who suffered losses as a result of Citigroup’s misstatements. At the SEC’s request, the judge gave the parties two weeks to return to court with a settlement proposal that addresses those two issues.
Brad Karp of Paul, Weiss, Rifkind, Wharton & Garrison, longtime outside counsel to Citi, declined to comment on the record when we asked him about Huvelle’s decision on Friday. Shannon Bell, a spokeswoman for Citigroup, said in a statement that the bank was “pleased with today’s hearing and will comply with the judge’s request.” In an e-mail, an SEC spokesman told us the agency would submit revised settlement documents as requested by the judge.
Despite giving her near-consent, Huvelle still didn’t hide her skepticism about the settlement, according to the The Wall Street Journal. She said that “$75 million is not going to deter anyone” unless Citi takes the remedial steps she outlined. And the judge still questioned why other Citigroup executives seemed to be getting off easy, saying, “This is where the SEC is doing a disservice to the public.”
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.