Brave Judge Rejects the SEC’s Latest Settlement with Citigroup

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Court for the Southern District of New York.

He's the judge, after all, who sought to declare the federal death penalty unconstitutional (even though the parties didn't ask him to), refused in 2009 to approve the SEC's settlement with Merrill Lynch over bonuses until the penalty increased from $33M to $150M, and who ordered the Pentagon in 2006 to release the names of all Guantanamo detainees.

Today, Judge Rakoff added to his legacy of independence by rejecting the SEC's efforts to settle with Citigroup for $285M over mortgage-backed securities fraud allegations. See, the agreement they reached didn't force Citigroup to admit that it had engaged in fraud—thus impairing the ability of shareholders to use the settlement to support their civil claims—and Judge Rakoff's short opinion absolutely blasts the collusion he sees between the SEC and those it regulates.

Under the law, Judge Rakoff was obligated to determine whether this settlement was "fair, reasonable, and in the public interest"; the SEC argued that no, the public interest didn't actually matter—and, if it did, the SEC itself could assess what the public needed. No no no, said the Judge:

Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary. <...> Before the Court determines whether the settlement is fair, it must ask a preliminary question: fair to whom? ... he answer is fair to the parties and to the public. <...>
Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest.

Why not? Because a settlement that didn't force Citigroup to admit its culpability allows for too much weaseling:

Here, the S.E.C.'s long-standing policy - hallowed by history, but not by reason - of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations, deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact. There is little real doubt that Citigroup contests the factual allegations of the Complaint. In colloquy with the Court, counsel for Citigroup expressly reconfirmed that his client was not admitting the allegations of the Complaint. He also noted, correctly, that he was free - notwithstanding the S.E.C.'s gag order precluding Citigroup from contesting the S.E.C.'s allegations in the media - to fully contest the facts in any parallel litigation; and he strongly hinted that Citigroup would do just that. ...
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.

And that was just the beginning. More at:
http://www.alternet.org/newsandviews/article/740774/oh%2C_snap%3A_brave_judge_rejects_the_sec%E2%80%99s_latest_settlement_with_citigroup/#paragraph3

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