According to Rakoff, the SEC’s $285mn 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 SEC's policy – “hallowed by history, but not by reason,” Mr. Rakoff wrote – creates substantial potential for abuse, the judge said, because “it asks the court to employ its power and assert its authority when it does not know the facts.” Citigroup was charged with negligence in its selling to customers a billion-dollar mortgage securities fund, known as Class V Funding III. The SEC alleged that Citigroup picked the securities to be included in the fund without telling investors, claiming that the securities were being chosen by an independent entity. Citigroup then bet against the investments because it believed that they would lose value, the SEC said.  Investors lost $700 million in the fund, according to the SEC, while Citigroup gained about $160 million in profits. The settlement establishes none of those allegations as fact, thereby making it impossible for the court to properly judge whether the settlement meets the required standard of being fair, adequate and in the public interest. The rejection was not a surprise since the judge had made clear at a November 9 hearing that he had major problems with the proposal to settle a major securities fraud case arising from the financial crisis. The ruling could throw the SEC'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. That condition gives a company or individual an advantage in subsequent civil litigation for damages, because cases in which no facts are established cannot be used in evidence in other cases, like shareholder lawsuits seeking recovery of losses or damages. The SEC did not respond immediately to a request for comment on the judge’s decision, which was released Monday morning. A Citigroup spokesman said the company was studying the decision and had no immediate comment.  For more details, go to [nytimes 11/28/11]