Judge Jed Rakoff is incensed.

In his mind, the SEC let Citigroup settle some significant charges for a mere $285 million slap on the wrist, esentially to be paid for by shareholders. He has every reason to be angry. In the face of this righteous anger, however, the SEC's options are limited. The Washington Post takes a look its position and suggests that none of its options are all that compelling.

Many would agree that it would be a mistake for it to take Citigroup to trial, as it would send the wrong message. If every target was held out for a trial, the SEC would end up overwhelmed. One option, however, would be to outsource litigation to a private firm. But that would be prohibitively expensive most likely. An appeal of the decision is also risky.

The article wrote that, "If the appeals court sided with Rakoff, the SEC would be in deeper trouble. Other judges in the same circuit--which encompasses the center of the nation's financial industry--would be bound by the same standard."

So that leaves renegotiation, which I have suggested is the most likely outcome. Judge Jed Rakoff in the SEC-Bank of America case similarly rejected a settlement and ordered a trial--only to approve, with reservations, a renegotiated settlement that appeared tougher on paper. It remains to be seen whether the SEC can wrangle such a deal out of Citigroup.

If the SEC could increase the penalty portion from the current $95 million and somehow extract an admission not of guilt but that its marketing was flawed, that just might carry the day. My sense is that ultimately they will redo the deal and the judge will approve with reservations, having made his point.

For more:
- here's the article

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