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Re: Taibbi's Latest
Greetings, folks. Hope everyone had a good Thanksgiving…
Just a quick update on a big piece of news that came through yesterday. 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.
I wrote about this story a few weeks back when Rakoff sent signals that he was unhappy with the SEC’s dirty deal with Citi, but yesterday he took this story several steps further.
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 practice is a legal absurdity for several reasons. By accepting hundred-million-dollar fines without a full public venting of the facts, the SEC is leveling seemingly significant punishments without telling the public what the defendant is being punished for. This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors.
This system allows for ugly consequences in both directions. Imagine if normal criminal defendants were treated this way. Say a prosecutor and street criminal combe into a judge’s chamber and explain they’ve cooked up a deal, that the criminal doesn’t have to admit to anything or plead to any crime, but has to spend 18 months in house arrest nonetheless.
What sane judge would sign off on a deal like that without knowing exactly what the facts are? Did the criminal shoot up a nightclub and paralyze someone, or did he just sell a dimebag on the street? Is 18 months a tough sentence or a slap on the wrist? And how is it legally possible for someone to deserve an 18-month sentence without being guilty of anything?
Such deals are logical and legal absurdities, but judges have been signing off on settlements like this with Wall Street defendants for years.
Judge Rakoff blew a big hole in that practice yesterday. His ruling says secret justice is not justice, and that the government cannot hand out punishments without telling the public what the punishments are for. He wrote:Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.Notice the reference to how things are “in much of the world,” a subtle hint that the idea behind this ruling is to prevent a slide into third-world-style justice. There are many such loaded passages in Rakoff’s ruling. Another one comes up around the issue of the “public interest.”
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 settlement only becomes problematic, the SEC implies, if you ask them to square their judgment with “the public interest.”
The SEC, in other words, is admitting that they have a standard for “reasonableness” and “fairness” that somehow does not coincide with the public interest. This surreal formulation translates as, “We’re doing the right thing – we’re just not doing it for the public.”
Rakoff’s response to this lunacy:A large part of what the S.E.C. requests, in this and most other such consent judgments, is injunctive relief... The Supreme Court has repeatedly made clear, however, that a court cannot grant the extraordinary remedy of injunctive relief without considering the public interest.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.That line, “a cost of doing business imposed by having to maintain a working relationship with a regulatory agency,” is one of the more brutally damning things you’ll ever see a judge write. Rakoff is saying that these fines are payoffs to keep the SEC off the banks’ backs. They’re like the pad that numbers-runners or drug dealers pay to urban precinct-houses every month to keep cops from making real arrests. That's what he means when he refers to "maintaning a working relationship." It's heavy stuff.
On the other hand, both the SEC and Citigroup insist that this secretive payoff system is defensible and must continue. They clearly believe, sincerely, that none of this stuff is really the public’s business.
This is an extraordinarily condescending attitude and shows exactly how little they think of the public at large. One wonders if decisions like Rakoff’s will at least help to wake the government up. -
Re: Taibbi's Latest
More likely hasten Rakoff's retirement or ring-fence him off from similar cases.One wonders if decisions like Rakoff’s will at least help to wake the government up.Comment
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Re: Taibbi's Latest
And also hasten the days of 'vigilante justice'.Comment
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Re: Taibbi's Latest
"Rakoff was also clearly disturbed about Citi’s remarkable status as a repeat “non-offender.” He noted that the big bank was a “recidivist” – repeatedly entering into settlements with the SEC, in which the bank neither admitted nor denied guilt, and agreeing to court orders prohibiting it from violating securities laws in future.
"The SEC routinely extracts these promises. But has not tried to enforce them in more than a decade. It continues instead to allow defendants to settle again and again — all without admitting that they did anything wrong.
"Adopting the language of the Occupy Wall Street movement, Rakoff ruled that if judges do not have enough information on which to base their decisions, then the deployment of judicial power “serves no lawful or moral purpose and is simply an engine of oppression.”
Read more: http://www.politico.com/news/stories...#ixzz1f8xy4y6JComment
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Re: Taibbi's Latest
speed kills . . . in this case, justice
(Reuters) - The U.S. Securities and Exchange Commission got a fresh dressing-down from the judge who rejected its $285 million settlement with Citigroup Inc, as he said the regulator kept him out of the loop on its efforts to salvage the case.
In his latest sharply-worded order, U.S. District Judge Jed Rakoff chastised the SEC for not telling him it had filed an emergency request with an appeals court to put the case on hold, after making the same request to him.
So when Rakoff on Tuesday issued a ruling opposing any delay in the case, he was beaten to the punch; 78 seconds earlier, the 2nd U.S. Circuit Court of Appeals had granted the SEC the temporary halt it sought.
He also accused the SEC and Citigroup of potentially "misleading" the court, saying they called him around 3:30 p.m. EST (2030 GMT) on Tuesday to discuss the case, without mentioning the filing with the 2nd Circuit.
Less than an hour later, the 2nd Circuit ruled, and so did Rakoff. That 2nd Circuit order negated the work Rakoff said he had done over the weekend to get a ruling to the SEC as quickly as he could.
Rakoff wrote that he "spent the intervening Christmas holiday considering the parties' positions and drafting an opinion, so that (the court) could file it on December 27, i.e. the first business day after the Christmas holiday."
To prevent a recurrence, Rakoff ordered the SEC and Citigroup to "promptly notify" him of any filings they make in the appeals court.
An SEC spokeswoman had no immediate comment. A Citigroup spokeswoman declined to comment.
The $285 million settlement was intended to resolve charges that Citigroup sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt, and causing more than $700 million of losses.
In rejecting the accord in November, Rakoff said the SEC's failure to require Citigroup to admit or deny its charges left him no way to know whether the settlement was fair. Rakoff also called the payout "pocket change" for the third-largest U.S. bank.
The 2nd Circuit case is SEC v Citigroup Global Markets Inc, 2nd U.S. Circuit Court of Appeals, No. 11-05227. The district court case is SEC v. Citigroup Global Markets Inc, U.S. District Court, Southern District of New York, No. 11-07387.
(Reporting By Aruna Viswanatha and Jonathan Stempel; Editing by Tim Dobbyn)
Copyright 2011 Reuters.
URL: http://www.cnbc.com/id/45819304/Comment
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Re: Taibbi's Latest
where the f__ is holder/DOJ on this matter?Originally posted by don/reuters
HOW MUCH HAS CITI PAID THEM TO SWEEP THIS AWAY????
OUTRAGEOUS!!!!
if i was that judge, they would have to whack me to shut me down from chasing this one to til end of life on this planet (either mine or citi's)
2011 (the entire period of 2009-2011 actually) is going to be listed in the history books as the year justice died and financial CRIME took over The USA
deep sadness engulfs or should engulf all who read this story -
AND WHERE IS THE LAMESTREAM MEDIA???? any bets that this one wont make it til mon (tues, since mon is a holiday)?Comment
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Re: Taibbi's Latest
Are you shitting me? That can't be a coincidence. How is this legal?Originally posted by don View PostComment
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Re: Taibbi's Latest
its hilarious!
one would think this is big news, EVEN ON NEW YEARS EVE....
so... lets see now... at 0955 hst/1455 est:
nuthin here: http://online.wsj.com/home-page
nor here:http://online.wsj.com/public/page/news-law-legal.html
not here: http://online.wsj.com/public/page/ne...-business.html
nope: http://www.bloomberg.com/
nada: http://www.bloomberg.com/news/us/
zilch: http://www.bloomberg.com/news/economy/
but it should be here: http://www.bloomberg.com/news/politics/
but guess everybody who matters is on some island somewhere and having too much fun to give a s__t
Comment
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Re: Taibbi's Latest
Naked Capitalism has been all over this from the beginning, detailing the fraud and why the SEC won't go to trial. From Dec. 5....
"Look no further for an answer than the SEC chief of enforcement, Robert Khuzami, Stewart’s primary and probably sole source for this article. He was General Counsel for the Americas for Deutsche Bank from 2004 to 2009. That means he had oversight responsibility for the arguable patient zero of the CDO business, one Greg Lippmann, a senior trader at Deutsche, who played a major role in the growth of the CDOs, and in particular, synthetic or hybrid CDOs, which required enlisting short sellers and packaging the credit default swaps they liked, typically on the BBB tranches of the very worst subprime bonds, into CDOs that were then sold to unsuspecting longs. (Readers of Michael Lewis’ The Big Short will remember Lippmann featured prominently. That is not an accident of Lewis’ device of selecting particular actors on which to hang his narrative, but reflects Lippmann’s considerable role in developing that product).
"Any serious investigation of CDO bad practices would implicate Deutsche Bank, and presumably, Khuzmami. Why was a Goldman Abacus trade probed, and not deals from Deutsche Bank’s similar CDO program, Start? Khuzami simply can’t afford to dig too deeply in this toxic terrain; questions would correctly be raised as to why Deutsche was not being scrutinized similarly. And recusing himself would be insufficient. Do you really think staffers are sufficiently inattentive of the politics so as to pursue investigations aggressively that might damage the head of their unit?"Comment
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