Federal Judge Jed Rakoff, at the SEC v. Citigroup hearing, lashed out at the SEC for its proposed settlement, which would have the bank ... (i) pay $285mn in disgorged profits, penalties and interest, (ii) while neither admitting nor denying the SEC's findings, and (iii) pledging not to violate the securities laws. Since 2000, SEC Enforcement has entered into at least 5 settlements with Citigroup - be it the bank's main brokerage subsidiary, its predecessors or its parent company.  And each Citi entity has agreed to not violate the antifraud laws.  It's also the 3rd case brought by the SEC that accuses a bank of misleading clients about mortgage securities - Goldman and JPMorgan Chase each settled their cases last year.  This prompted the following exchange:

Judge Rakoff:  the current settlement offer is "just for show."

“We’re not saying that we will never use injunctive relief,” responded Matthew Martens, an SEC senior lawyer.

Judge Rakoff shot back: "Hope springs eternal."

"There is no basis for any assertion that Citi has violated the terms” of any agreement with the SEC, responded a Citigroup spokesperson - though not in the presence of the judge.

Judge Rakoff called the contempt power — a judge’s ability to punish a party for disobeying a court order - “the backbone of the judiciary,”  and he questioned whether the SEC was really serious about ever seeking an injunction against repeat offenders. Next Steps. Judge Rakoff reserved judgment on whether he would sign off on the settlement, explaining that he would issue a written opinion at a later date.  And, it's unclear which way Judge Rakoff is leaning and whether he will allow the bank to resolve this case under its current settlement terms.  The judge further criticized the $95mn penalty, pointing out that, according to SEC estimates, investors suffered $700mn in total losses on the mortgage deal.  “So the net effect of this is that you’re only returning a small fraction of what the investors lost, yes?” Later in the hearing, Judge Rakoff tossed this 'hand grenade' at Brad Karp, the Citigroup lawyer, regarding the penalty amount:  “I won’t be cute and ask what percentage of Citigroup’s net worth is $95 million because I do not have a microscope with me.” For further details, go to:   [Dealbook, 11/9/11] For details on terms of the SEC-Citigroup settlement offer, go to:  [SEC Press Release 11-214, 10/19/11]