A federal judge in New York on Monday threw out a settlement between the Securities and Exchange Commission and Citigroup over a 2007 mortgage derivatives deal, saying that the S.E.C.’s policy of settling cases by allowing a company to neither admit nor deny the agency’s allegations did not satisfy the law.
The judge, Jed S. Rakoff of United States District Court in Manhattan, ruled that the S.E.C.’s $285 million settlement announced last month, is “neither fair, nor reasonable, nor adequate, nor in the public interest” because it does not provide the court with evidence on which to judge the settlement.
The order could throw the S.E.C.’s enforcement efforts into chaos, because a majority of the fraud cases and other actions that the agency brings against Wall Street firms are settled out of court, most often with a condition that the defendant does not admit that it violated the law while also promising not to deny it.
FINRA arbitration is a dispute resolution process offered by the Financial Industry Regulatory Authority (FINRA) for resolving conflicts between investors, brokerage firms, and registered representatives. It serves as an alternative to traditional court litigation, providing a faster and often less costly way to settle disputes. In FINRA arbitration, a neutral arbitrator or panel hears both sides of the issue and makes a binding decision. This process is particularly common in cases involving allegations of securities fraud, breach of fiduciary duty, or other violations of securities laws. Investors and firms generally agree to arbitration in their customer agreements, making it a common method for resolving issues in the securities industry. With a focus on efficiency and finality, FINRA arbitration helps maintain trust and stability in the financial markets.