The Financial Services Committee of the U.S. House of Representatives will hold a hearing on Thursday, May 17, to examine the settlement practices of federal financial regulators.

“Federal regulators often settle enforcement actions against defendants too quickly impose and collect fines or institute corrective actions rather than litigate lengthy and expensive trials whose outcomes are uncertain,” an announcement of the meeting says.  “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 the marketing of mortgage-backed securities.  In rejecting the settlement, 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 Committee Chairman Spencer Bachus.  “However, it is appropriate for the Committee to examine how and why the financial regulators resolve civil enforcement proceedings.”

Witnesses scheduled to testify at the hearing, which begins at 10 a.m., include:  Scott G. Alvarez, general counsel, Board of Governors, Federal Reserve System; Robert Khuzami, director of the SEC's Division of Enforcement; Richard Osterman, Jr., deputy general counsel for the litigation and resolutions branch of the Federal Deposit Insurance Corporation;  Daniel Stipano, deputy chief counsel, Office of the Comptroller of the Currency;  William Galvin, Massachusetts' secretary of state; Richard Painter, professor  at the University of Minnesota Law School; and Kenneth Rosen, professor at the University of Alabama School of Law.

Agencies overseen by the committee include: the Federal Reserve, Treasury, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Federal Housing Finance Agency, and the Export-Import Bank.