FORTUNE -- Sometimes, in a sea of questions there is that one that makes all the difference. Last week, Judge Jed S. Rakoff asked the SEC to explain how its $285 million settlement with Citigroup would ensure that the bank would be upfront with its clients in the future.
It's a fair question, given that the settlement is in response to charges that Citi (C) had misled its mortgage securities investors in the run up to the housing crisis. But at face value, the question may not be so easy for the SEC to answer, leaving the federal judge's approval of the settlement up in the air.
Citi's 2003 settlement with the SEC also included a promise to provide fair and open disclosure to clients, but this recent settlement calls for little in the away of substantive reforms to the governance and culture at the company. But it is failures in governance that lead to these problems in the first place.
Rakoff seems to understand just how important corporate governance can be. He oversaw the WorldCom bankruptcy and the appointment of former SEC chair Richard Breeden as court monitor. That case led to governance recommendations that boards would be wise to follow, but continue to resist.
So how will the SEC respond and what should Rakoff be looking at in this latest case? Here's a start:
Why did previous remedies fail?
Citi's board has a responsibility to oversee the company's culture. And two of its board directors have been on the board since before the 2003 settlement, including chairman Richard Parsons. More
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