Thursday, December 1, 2011

Judge Rejects Obama's SEC Coverup

Security and Exchange Commission

Judge Rakoff

“A Modern Major Law Clerk”

"I laugh at all my judge’s jokes, and listen to his endless spiel.

I never pay the slightest heed to his reversals on appeal.

And even in those moments when it looks like he has gone berserk,

I smile and say, “More coffee, Judge?” – a perfect district judge’s clerk!"

-Jed Rakoff, 2000 edition of the “Courthouse Follies.”

Jed Saul Rakoff was born in Philadelphia, on New Years Day, in 1943. In high school, he was captain of the debating team. He graduated with honors in English literature from Swarthmore College (where he was student-council president and editor of the newspaper) in 1964, and earned his Master of Philosophy from Balliol College at Oxford University two years later. He thought about pursuing journalism and becoming a reporter before going to Harvard where he received a Juris Doctor, cum laude (a professional doctorate and first professional graduate degree in law, with honor), in 1969, where he was a member of the Harvard Legal Aid Bureau. He has received honorary degrees from Saint Francis University and from Swarthmore College.
Swarthmore, in conferring his honorary degree, noted that Judge Rakoff is "broadly recognized as a legal thinker, scholar and judge who not only elucidates and enforces the law, but interprets, defends and challenges it in light of the principles of ethics and social justice that it is designed to serve" and that his opinions "are cited as models of intellectual clarity and judicial vision by lawyers and judges throughout this nation."
And in his spare time he's taken up ballroom dancing.
On October 11, 1995, Judge Rakoff was nominated by President Bill Clinton to fill a seat on the Federal Court of the Southern District of New York vacated by David N. Edelstein. He was confirmed by the Senate on December 29, 1995, appointed on January 4, 1996, and entered on duty on March 1, 1996. On December 31, of last year he assumed senior status.
"He has always been a feisty person," says Todd Rakoff, the judge's younger brother, a law professor at Harvard University. "He's not at all afraid to mix things up, to put it colloquially, but I would say also that I think he really cares about getting it right, and I think he views the law as an instrument of justice."
Monday Judge Rakoff made national headlines... again, for throwing out a proposed $285 million settlement between the Security Exchange Commission (SEC), the supposed watchdog agency for the federal government (which is responsible for regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States. It is thus the watchdog agency for the American people as well), and Citigroup, Inc. the world's largest financial services network, with $3.77 billion in profit for its last quarter.
According to the Securities and Exchange Commission, Citigroup stuffed a $1 billion mortgage fund that it sold to investors in 2007 with securities that it believed would fail so that it could bet against its customers and profit when those values declined. The fraud, the agency said, was in Citigroup’s falsely telling investors that an independent party was choosing the portfolio’s investments. Citigroup made $160 million from the deal and investors lost $700 million.
I emphasized the word fraud in the above paragraph. "In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual. Fraud is a crime, and also a civil law violation." -Wikipedia.
Now I emphasized that word, strangely enough, for a reason. Everyone pretty much agrees that fraud is a crime. I certainly do. Those committing crimes, when prosecuted, are usually punished commensurately to the seriousness of the crime. If you and I were caught and prosecuted for defrauding investors out of $700 million dollars (assuming you are not a big time Wall Street executive, or ex-Bush administration official) we would most likely get a stiff prison sentence, a big fine, and then have to face civil charges as well.
Well the SEC and Citigroup worked out a little deal. The big bank would pay the SEC a whopping $285 million dollars, 7.5596816976127315% of its last quarterly profits, promise not to do it again, and then the matter would be settled. Citigroup would be allowed to go back business as usual, and the SEC would go back to investigating other cases. Oh yeah, and Citigroup would not have to admit that it did anything wrong, or that it broke the law in anyway. Not having to admit fault would come in handy in the future when all of those Citigroup investors who were defrauded sued it in civil court.
As it has in other recent cases involving Bank of America, JPMorgan Chase, UBS and others, the SEC proposed to settle the case by levying a fine and allowing it to neither admit nor deny the SEC’s own findings. Such settlements require approval by a federal judge.
This time they got Jed Rakoff.
"As an institution, I think they have a very distinguished history," Judge Rakoff says of the SEC, in an interview with The Wall Street Journal. "That doesn't mean they're right in every case."
Judge Rakoff’s concern was that the SEC did not provide any facts for the court to use to vet the settlement.
That should concern all Americans because without any admission of guilt, or innocence for that matter, there is no way to know if the remedies... including fines and pledges by Citigroup not to violate antifraud laws in the future, will indeed protect investors and ensure the integrity of markets.
Banks like the “no-admit/no-deny” clause, because if they had to admit to wrongdoing, they would invite additional lawsuits by their investors. As stated above, the SEC has claimed that settling rather than prosecuting allows it to obtain timely compensation for victims and to move on to other cases. That is partly true. It also has another, probably intended, affect, and that is to give these large, multinational, Washington lobbying, political campaign contributing, corporations what amounts to a free pass. 7.5596816976127315% of one quarter's profit, is a hell of a lot of money, but small potatoes for an entity such as Citigroup.
The title of this post ties President Obama to the SEC. The President appoints the SEC's five commissioners, which head the SEC, thus Obama is ultimately responsible for the SEC's actions, or lack thereof. The Obama administration now has a history of letting domestic criminals slide (he just assassinates foreign criminals), and what I mean by "slide," is letting guilty parties get off scott free from being prosecuted, tried, and punished. I'm very sorry to say that, but it's true. Not choosing to prosecute the former administration for obvious and admitted war crimes, and actively stifling attempts by foreign governments to do the same (Spain), is a clear example of my accusation (observation really). It would appear that the SEC is just following along with a course set by the White House in allowing large Wall Street firms, or large business firms in general, to get away with almost anything, which allows said corporations to continue to lobby and contribute to political campaigns.
In a welcome move Judge Rakoff wasn't having any of it.
The SEC, Judge Rakoff argued, “has a duty, inherent in its statutory mission, to see that the truth emerges.” But it is difficult to tell what the agency is getting from this settlement “other than a quick headline.” Even a $285 million settlement, he said, “is pocket change to any entity as large as Citigroup,” and often viewed by Wall Street firms “as a cost of doing business." He said that the $285 million deal was “neither fair, nor reasonable, nor adequate, nor in the public interest.”
"Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud, but the defendant neither admits nor denies wrongdoing?" he wrote in an order last month, which led to Monday's ruling.
I agree. Why should it?
Here's his full 15 page opinion, if you're interested:
The SEC said that it disagreed with the judge’s ruling but didn't say whether it would appeal it, or try to refashion the settlement, or prepare to begin a trial, as the judge ordered, which would begin on July 16th.
Robert Khuzami, the SEC’s Director of Enforcement, said in a statement that the Citigroup settlement “reasonably reflects the scope of relief that would be obtained after a successful trial,” and that the decision “ignores decades of established practice throughout federal agencies and decisions of the federal courts.”
Well maybe... and maybe now is the time to start ignoring decades of established practice throughout federal agencies (what's good for the Supreme Court (Citizens United) is good for Judge Rakoff apparently). Maybe it's time for something new. Like real justice. Isn't that one of the stated goals of the Occupy movement?
Citigroup said it also disagreed with the judge’s decision, adding that it would fight the charges if the case indeed went to trial.
Good for them! I wish the smug little bastards well.
Other judges are not obligated to follow Judge Rakoff’s opinion of course, but the ruling could severely undermine the SEC’s enforcement efforts if it eventually blocks the agency from settling cases in which the defendant does not wish to admit to the charges.
Good! I'm generally against the practice of plea bargaining, which this SEC proposed settlement essentially is, and which is used extensively by the justice system to save time and money.
Cases as large and significant, and symbolic as this one... they need to go to trial. Just saying.
As for Judge Rakoff, he's no stranger to controversial cases. In the past he essentially restructured the communications giant WorldCom after the SEC accused it of fraud, he rejected a similar deal between the SEC and Bank of America ordering them to trial, and once found the death penalty unconstitutional, among others.
The death penalty ruling proved to be unpopular within certain circles.
Rakoff said he got a lot of negative mail after that ruling. But he only received a direct threat once when an apparently drunk man reached him by phone at the courthouse, referring to a ruling he didn’t even recognize, stating, “I’m going to murder you!” As the judge tried to keep him on the phone so it could be traced, he realized the man was referring to another judge’s ruling in another case.
“I was so tempted to say, ‘Let me transfer your call.’”