Citigroup, SEC defend $285 million CDO settlement
The Securities and Exchange Commission asked a federal district judge to accept the agency's $285 million settlement with Citigroup (C) to resolve $1 billion in losses stemming from a collateralized debt obligation sold by a Citi subsidiary. Per the agreement reached by the SEC and Citi, the big bank said it would return $285 million to investors in compensation for losses on a CDO called Class V Funding III. The CDO was sold to investors through a Citi subsidiary. In the original settlement, Citigroup neither admitted nor denied wrongdoing. But the settlement did prompt U.S. District Court Judge Jed Rakoff to call a Nov. 9 hearing in New York to review the final agreement. The judge raised questions for both parties after considering the alleged losses faced by CDO investors in the case. In court filings this week, SEC officials defended the settlement with Citigroup as "fair, adequate, and reasonable" and admitted investors lost several hundred million dollars in related deals. The SEC further defended the settlement saying "the commission may obtain civil monetary penalties against a defendant in specified limited dollar amounts." Still, the SEC added "as a general rule, the commission does not recover damages suffered by victims of a securities fraud scheme." Citigroup also filed a response to several questions posed by the judge. The court asked why it should it impose a judgment in a case where the defendant does not admit wrongdoing. The banking giant said "as a general matter, the public interest is served by sophisticated litigants compromising complicated matters in a manner that avoids wasteful litigation and exposing both parties to extreme results." Write to Kerri Panchuk.