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In 2012, Citigroup Proceedings Will Take Center Stage for SEC Enforcement

Publication Date: 
January 26, 2012
Daily Report for Executives - BNA
Yin Wilczek

Professor Joseph A. Grundfest was quoted in the following article by Yin Wilczek of the Daily Report for Executives on the significance of the upcoming appeal by the Securities and Exchange Commission of the decision made in the Citigroup Global Markets Inc. case.

The Securities and Exchange Commission's appeal of the Citigroup Global Markets Inc. case could be the single most important development for the agency's enforcement program in 2012, attorneys and other observers said.

The agency asked the U.S. Court of Appeals for the Second Circuit in mid-December to review the rejection by the U.S. District Court for the Southern District of New York of a proposed $285 million settlement to resolve SEC allegations that Citigroup misrepresented its role in a $1 billion collateralized debt obligation in 2007.

The commission's appeal “may well result in the most important securities law decision of the year,” observed former SEC commissioner Joseph Grundfest, now a law professor at Stanford University.


“Defendants will rationally refuse to settle on grounds that the agreement can create substantial, uncontrollable liability in parallel litigation,” Grundfest said. That, in turn, would result in the SEC having to dramatically overhaul the entire operation of its enforcement program, he said.


Circuit will not go so far,” Grundfest told Bloomberg BNA. Instead, the appellate court, while finding that “judges are not, of course, potted plants,” also will conclude that “neither admit nor deny” settlements are entirely permissible provided the parties offer proof that the proposed resolution is reasonable, he said.

“To argue, as Judge Rakoff does, that there is an independent public interest in having an admission or a trial effectively implies that a case can never be settled as a practical matter, and that is simply not the law,” Grundfest said.