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.