(CN)- U.S. District Court Judge Jed Rakoff "committed legal error" when he rejected a proposed $285 million settlement agreement between the U.S. Securities and Exchange Commission and Citigroup over toxic mortgage backed assets according to statement by the SEC.
     Announcing that they would appeal Judge Jed Rakoff's order to go to trial, Robert Khuzami, SEC Director of the Division of Enforcement said he believed that the "District court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits."
     Khuzami said that Judge Rakoff was setting a new legal standard by requiring an admission of facts by Citigroup, or a trial, before he would approve any consent judgment.
     "The court's new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide," Khuzami said.
     If allowed to stand, Khuzami argued, the standard would force the SEC to go to trial more often doubly hurting investors by depleting staff resources and threatening the certain benefits of a settlement versus the risks of a trial.
     "Based on a careful balancing of these risks and benefits, settling on favorable terms even without an admission serves investors, including investors victimized by other frauds. That is due to the fact that other frauds might never be investigated or be investigated more slowly because limited agency resources are tied up in litigating a case that could have been resolved," Khuzami said.
     Khuzami was also critical of the judge's ruling on the specifics of the Citigroup case noting even though the $285 million Citigroup agreed to cough-up was not equal to investor loses, the SEC was statutorily prohibited from seeking the full amount of those losses and that the sum was about what the SEC would have sought at trial.
     Referring to a line from Judge Redkoff's order that the $95 million in civil penalties that the settlement proposed was "pocket change to any entity as large as Citigroup," Khuzami pointed out that "the law does not permit the Commission to seek penalties based upon a defendant's wealth."
     The SEC filed its Notice of Appeal with the 2nd Circuit on December 15th.