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Hearing Will Examine Regulator Settlements

Joe Mont | May 16, 2012

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

“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

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.