While a massive settlement by an investment bank would send ripples through the market, the recent rejection of an SEC vs. Citigroup settlement may be of particular interest to investors in Sirius XM.  In a scathing decision, Judge Jed S. Rakoff rejected a proposed $285 million settlement between the SEC and Citigroup, citing that the settlement was, "neither fair, nor reasonable, nor adequate, nor in the public interest."

At issue was Citigroup's sale of mortgage-backed securities that cost investors almost $700 million in losses while the bank garnered profit of about $160 million in profits.  It was alleged that Citigroup saw the weakness in some of their mortgage assets, created a new fund for them, and marketed the sale of this investment as attractive in that the assets were rigorously selected by an independent investment advisor.  Citigroup, the SEC alleges, then short the same investment while unsuspecting investors thought they were buying something of quality.

Judge Rakoff expressed concern with the Citigroup settlement citing that the  court, and the public need some knowledge of what the underlying facts are.   He also seemed to dislike the fact that Citigroup gets to walk away from this case without admitting any wrongdoing.  Rakoff stated that he had to reject the proposed settlement because the court had no proven or admitted facts with which to make  a decision to even a modest degree.

Rakoff seems to be as angry with the SEC as he is with Citigroup.  In the case the SEC argued that "public interest is not part of the applicable standard of judicial review."  In simple terms Judge Rakoff seems to be taking a stand against back room deals that make the process less transparent, wants the public interest considered, and wants the facts of the case to be known to the court as well as the people.

Now the issue gets interesting for Sirius XM investors.  It is Judge Rakoff that will be hearing the Shenk case against Sirius XM in 2012.  Had it been Rakoff that heard the Blessing case, things may have turned out a little differently.  Already the proposed settlement on the Blessing case is being challenged in numerous appeals, one being  filed by a watchdog group last week that fights vigorously against "coupon settlements" to class action suits.

The Shenk matter is being brought on behalf of shareholders.  Sirius XM has already argued that much of the Shenk matter should be dismissed because of the settlement in the Blessing suit.  The stark difference here is that the Blessing suit was brought on behalf of subscribers, while the Shenk matter is brought on behalf of investors.

So who is Michael Shenk?  He has been accused of being part of the National Association of Broadcasters.  NOT TRUE.  He has been accused of being part of the Pennsylvania Association of Broadcasters.  Again, NOT TRUE.  He has been accused of being a part of a lobbyist group.  NOT TRUE.  People that jumped to these conclusions did so with no facts to support their stance, but instead applied an overactive imagination and presented it as fact.  The REAL fact is that Michael Shenk is a ordinary man that works for an engineering firm in Pennsylvania.  He has likely even been seen by many long time Sirius XM investors in the movie Stock Shock, where he appeared with a speaking part!  Shenk is an ordinary guy who wants clarity, answers and disclosure.  With Judge rakoff hearing the case he may just get that.  Whether you or I agree with Shenk's actions or not does not really matter.  The man is not part of a big NAB conspiracy, so that needs to be put to rest.

As a Sirius XM investor there is no way to know the outcome of the Shenk suit, the appeals on the Blessing suit, or what any of these things mean to the equity.  It is however a decent idea to know the dynamics involved, and understand the players.  Typically news on a judge may not seem relevant, but his recent decision was a big one, and gives a little insight into the mind of the man that will be ruling on the case.

An interesting article about Rakoff's Decision in the New York Times.