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Citing the need for more openness in the financial markets, Manhattan Judge Jed Rakoff rejected an agreement on Monday that would have had Citigroup paying penalties while allowing it to continue denying allegations it misled investors about a mortgage investment.
The SEC has charged Citigroup for selling a $1 billion mortgage-linked collateralized debt obligation, Class V Funding III, in 2007 as the housing market was beginning to collapse, and then betting against the transaction to make $160 million while other investors lost money.
In a written opinion, Rakoff said the proposed settlement was “neither reasonable, nor fair, nor adequate, nor in the public interest.”
The settlement would have required Citigroup to give up the $160 million in profit, plus $30 million in interest. It would have also imposed a $95 million fine for the bank’s alleged negligence.
Rakoff wrote that the SEC “has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”
Rakoff set a trial date of July 16, 2012.
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