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Federal Judge Pimp-Slaps the SEC Over Citigroup Settlement
POSTED: November 29, 10:10 AM ET

In one of the more severe judicial ass-whippings you’ll ever see, federal Judge Jed Rakoff rejected a slap-on-the-wrist fraud settlement the SEC had cooked up for Citigroup.

Rakoff’s 15-page final ruling read like a political document, serving not just as a rejection of this one deal but as a broad and unequivocal indictment of the regulatory system as a whole. He particularly targeted the SEC’s longstanding practice of greenlighting relatively minor fines and financial settlements alongside de facto waivers of civil liability for the guilty – banks commit fraud and pay small fines, but in the end the SEC allows them to walk away without admitting to criminal wrongdoing.

This issue of whether or not the SEC must consider the public interest in granting these cozy settlements gets to the heart of the Occupy Movement's central complaint, that there are two different sets of rules for two different Americas. The SEC in this case incredibly argued – out loud, on paper – that it could make regulatory decisions without considering the public interest. In particular, it argued that it didn’t need to consider the public interest when granting “injunctive relief,” i.e. an injunction barring future behaviors, as opposed to the stiffer and more immediate punishment of fines or criminal charges.

The SEC argued to Judge Rakoff that "the public interest ... is not part of [the] applicable standard of judicial review."

Translating: “When we decide to let thieving megabank off with just a promise to never do it again, we don’t have to consider whether or not this is in the public interest.”

If you stand back and really think about what this argument means, it’ll make your head spin. What the SEC is saying here is that according to the incestuous values of the small community of high-priced revolving-door lawyers who both head the SEC enforcement office and run the defense teams of banks like Citi, a $95 million fine with no admission of wrongdoing for a $700 million fraud is, in fact, “fair” and “reasonable.”...

The Rakoff ruling shines a light on the way these crappy settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the SEC’s only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

AZGrizFan wrote:Oh.....THAT SEC.

TwinTownBisonFan wrote:

AZGrizFan wrote:Oh.....THAT SEC.

yep... me too...

kalm wrote:This is good news but it really does highlight the corruption and the fact there are two Americas. Fines paid for criminal fraud without admitting guilt are simply the cost of doing business. This should be a front page headline in every paper.

...The SEC argued to Judge Rakoff that "the public interest ... is not part of [the] applicable standard of judicial review."

Read more: http://www.rollingstone.com/politics/bl ... z1fa55KXUY" onclick="window.open(this.href);return false;

travelinman67 wrote:

kalm wrote:This is good news but it really does highlight the corruption and the fact there are two Americas. Fines paid for criminal fraud without admitting guilt are simply the cost of doing business. This should be a front page headline in every paper.



Read more: http://www.rollingstone.com/politics/bl ... z1fa55KXUY" onclick="window.open(this.href);return false;

Good post.

Judicial (constitutional) interpretation/application fundamentally is designed to place public interest foremost. The SEC lawyers should be shown the door.

Some might be surprised, but I strongly supported Elizabeth Warren's appointment as head of the CFPB. I studied her carefully during her tenure as head of the Oversight Committee. Most notable was her sincere focus on both short and long term regulatory reforms designed to weed out the unethical players, and her ability to steer away from political quid-pro-quo and euphemistic white-washing (my type of gal). The Republican's opposition shamefully emanated from corrupt obligation to the investment banking interests....OH YES IT DID!!!

Not to be let off the hook, the far-left Dem support laughably emanated from the belief she'd wield a Naderesque regulatory sword to punish the mythical Corporate beast. Realistically, Corrupt Congress would've gutted any radical reforms generated by CFPB. Unfortunately, status quo is what resulted with Obama's appointment of Cordray, a cliche'd Dem bridesmaid-but-never-bride whom the Dem's selected principally as a Dem-in-development duty.