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Committee to Review Regulators’ Settlement Practices


Washington, May 15 -

- The Financial Services Committee will hold a hearing on Thursday to examine the settlement practices of federal financial regulators.

Federal regulators often settle enforcement actions against defendants to quickly impose and collect fines or institute corrective actions rather than litigate lengthy and expensive trials whose outcomes are uncertain.  However, these settlements often do not require the defendants to admit wrongdoing but they do have to be approved by a court.

The settlement practices of the Securities and Exchange Commission have come under particular scrutiny.  Late last year, Federal District Court Judge Jed Rakoff rejected a $285 million settlement between the SEC and Citigroup Capital Markets in a case involving Citigroup’s marketing of certain mortgage-backed securities.  In rejecting the settlement, Judge Rakoff said it was not in the public’s interest because the settlement did not include an admission of wrongdoing.

The SEC and Citigroup jointly appealed the decision and the Second Circuit Court of Appeals temporarily stayed Judge Rakoff’s order.  The case is still pending appeal.

“Given the expense and uncertainty of trials, it makes sense to leave the judgment of whether to try a case or attempt to settle it to the regulators’ discretion,” said Chairman Spencer Bachus.  “However, it is appropriate for the Committee to examine how and why the financial regulators resolve civil enforcement proceedings.”

The hearing will begin at 10 a.m. in room 2128 Rayburn House Office Building.  Witnesses who are scheduled to testify at the hearing are:

Scott G. Alvarez, General Counsel, Board of Governors of the Federal Reserve System

Robert Khuzami, Director, Division of Enforcement, U.S. Securities and Exchange Commission

Richard J. Osterman, Jr., Deputy General Counsel, Litigation and Resolutions Branch, Federal Deposit Insurance Corporation

Daniel P. Stipano, Deputy Chief Counsel, Office of the Comptroller of the Currency

The Honorable William F. Galvin, Secretary of the Commonwealth Massachusetts

Richard W. Painter, Professor of Law, University of Minnesota Law School  

Kenneth Rosen, Professor of Law, University of Alabama School of Law