Citigroup's $285 million SEC settlement rejected

[erdawiro]

Snippets from CNNMoney:

A judge rejected a proposed $285 million mortgage securities fraud settlement between Citigroup and the Securities and Exchange Commission on Monday, saying the deal was "neither fair, nor reasonable, nor adequate, nor in the public interest."

Judge Jed Rakoff said that the settlement announced last month, under which Citi neither admitted nor denied the SEC's allegations, deprived the public "of ever knowing the truth in a matter of obvious public importance."

He instead ordered Citi to face trial over the allegations in July 2012.

...

The SEC has alleged that in 2007, Citi created and sold a mortgage-related collatarized debt obligation, or CDO, called Class V Funding III.

According to the SEC complaint, one CDO trader characterized the asset group in internal communications as "a collection of dogshit" and "possibly the best short EVER!"
In marketing materials, however, the assets were described as "attractive investments rigorously selected by an independent investment adviser," Rakoff's decision said.

After marketing the CDO, Citi then took a short position -- or bet against -- the security as the housing market deteriorated, bringing in a net profit of $160 million for the bank. Meanwhile, investors lost more than $700 million.

[ThaBigP]

Dont'cha just love the system? The government orders the banks to issue risky loans, but allows them to securitize them and sell them up the river to Fannie/Freddie, backed by taxpayers. When the whole thing implodes, the taxpayers have to bail out both Freddie/Fannie *and* the banks holding some of the junk as well (since Freddie/Fannie bought up those mortages and *also* securitized them, and sold *those* back to the banks!). But all was well - since everybody, most noteworthy AIG, sold credit-default-swaps to "insure" the garbage! But nobody actually had any of the wealth they stated on paper, being paper-for-paper write-ups. Then the SEC deterimes Citi defrauded investors... and settled for a big fine. Judge don't like it, and wants to charge Citi - presumably to levy even larger fines among other things .... all backed by the Fed and taxpayers. But don't worry, little guy - your deposts are insured. By the FDIC. Which is broke. But it's all going to be OK in the end ... as a last resort we have the Federal Reserve which can ultimately backstop all of this rotten mess. But they're already "guaranteeing" over $7.77 Trillion in secret loans and $2.2 Trillion in assets using $52 Billion in capital. Sure... this will all work out. :0/

This is a futile effort in circle-jerkiness if you ask me.