NYC judge rejects $285M SEC-Citigroup agreement
---Associated Press / November 28, 2011
by Loren Berlin
November 29, 2011
When federal judge Jed Rakoff tossed out a proposed settlement between the Securities and Exchange Commission and banking giant Citigroup on Monday, he signaled to both the SEC and the nation's largest financial institutions that the two parties can no longer snuggle up together in cozy settlements that enable misbehaving banks to pay a fine for their bad deeds without ever requiring the institutions to admit wrongdoing.
According to some legal professionals, Judge Rakoff's decision could be a game-changer, requiring the SEC to really step up to the plate in terms of enforcement.
Judge Rakoff wrote in his decision that the SEC's "long-standing policy, hallowed by history but not by reason," of allowing financial institutions to avoid admitting guilt betrays the public interest -- both individual investors and society at large -- by leaving the question of what really happened unaddressed. As long as the bank does not have to acknowledge the facts, the truth remains unknown.
The ruling will likely affect others, as well. "Generally, Judge Rakoff is considered a very thoughtful, well-respected judge, so certainly judges all over the country are going to look at this and think about what he has said," said Daniel Berger, a securities lawyer who has worked on similar cases.
This is not the first time Judge Rakoff has thrown out an SEC settlement. In 2009, he dismissed a proposed settlement between the SEC and Bank of America that would have required the bank to pay a $33 million fine for the $3.6 billion the bank paid out in executive bonuses after acquiring Merrill Lynch and shortly before receiving federal bailout funds. In that case, Rakoff argued that the financial penalties were too small in relation to the crime, and eventually agreed to a $150 million fine instead.
While it's too early to accurately predict the implication of the decision on future SEC settlements, it's clear that Judge Rakoff has gone beyond just firing a warning shot to the federal agency whose job is to be the cop on the beat on Wall Street.