But whether or not it survives, the ruling has already achieved at least two things: Combined with Judge Rakoff’s prior objections to SEC settlements, it reminded the SEC and its Wall Street targets that gaining judicial approval for their behind-the-scenes dealmaking isn’t just a formality, at least in the Southern District of New York. And it cements Judge Rakoff’s reputation for challenging the SEC, even if it means departing with his colleagues on the bench.
As the New York Law Journal reports, Judge Rakoff found that the SEC failed to provide “any proven or admitted facts upon which to exercise even a modest degree of independent judgment” about whether to approve the deal, which would resolve allegations that Citi duped investors by secretly including a large percentage of toxic assets in a $1 billion collateralized debt obligation and then betting against the CDO. He consolidated the case with the SEC’s related fraud suit against Citi employee Brian Stoker and set a July 2012 trial date.
