In a stunning move, U.S. District Court Judge Jed Rakoff rejected a sweetheart deal between the SEC and Citigroup that would have ended a massive investigation of allegations of fraud by Citigroup in the sale of mortgage-backed securities. The judge ordered the parties to prepare for trial. As we noted earlier (see below article) the judge, early on, smelled a rat.
The deal would have allowed Citigroup to settle without having to admit it did a single thing wrong and that their executives were only negligent. Add to that, Citigroup would only have paid out $285 million in fines, whereas the alleged fraud amounted to over $700million. Imagine a bank robber getting a deal where he did not admit he robbed the bank but that he was only negligent, in withdrawing money from a bank where he did not have an account. Imagine a bank robber getting a deal where he gets to keep most of the loot. Where do we get government lawyers who cut these deals?
Well, forget the government hacks who want to cut deals with Wall Street so they can later get a job on Wall Street. We have in the form of Judge Rakoff a true American hero not afraid to take on both Wall Street and the Government. Just read some of what he had to say about the proposed deal that he rejected.
“This is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business.”
“By the S.E.C.’s own account, Citigroup is a recidivist, and yet, in terms of deterrence, the $95 million civil penalty that the Consent Judgment proposes is pocket change and in any event, this still leaves the defrauded investors substantially short-changed. The settlement is neither reasonable, nor fair, nor adequate, nor in the public interest.”
“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 to see that the truth emerges”.
With those words, the judge ordered the SEC to prepare to take Citigroup for trial for fraud. Make him Attorney General now.
UPDATE NOV 10
In a settlement hearing between Citigroup and the SEC over allegations of massive fraud, U.S. District Judge Jed Rakoff took the side of taxpayers. YES, a federal judge took on both the SEC and Wall Street.
The hearing was over a proposal by the SEC and Citigroup to quietly settle claims of mortgage security fraud at Citigroup. It’s alleged that the fraud involved hundreds of millions of dollars in mortgage securities. The proposed settlement would end government investigations of Citigroup and its role in the financial meltdown of 2008. The settlement has been called a sweetheart deal .
Judge Rakoff didn’t buy it. He grilled the SEC and Citigroup attorneys. Here is just some of what the judge said to these attorneys.
“Doesn’t the SEC have an interest in what the truth is? “
Dead on, Judge, don’t stop. And he didn’t.
Citigroup commits massive fraud, but as part of the proposed deal, never has to admit doing a single thing wrong. When questioned by the judge, one Citigroup attorney stated, “We do not admit the allegations,” “but if it’s any consolation, we don’t deny them.”
As for the $95 million fine that Citigroup has to pay, consider how much Citigroup was able to pocket in the scam. The Judge hit it out of the park with his comments. Plaintiffs are “out something like $600 million, so the net effect of this is, you’re only returning a small fraction of what the plaintiff’s lost, yes.”
As to the pitifully small proposed fine, the Judge said, “I won’t be cute and ask what percentage of Citigroup’s net worth is $95 million because I do not have a microscope with me.”
Finally the Judge hammered the SEC over the so-called sanctions that are supposed to stop Citigroup from running another scam.
“Is this another, forgive me, window dressing?
We’re not really serious that we would bring these folks to task.”
“It’s just for show.”
Well, as I said in my earlier story, this man gets it! Send him flowers today!
Original story below
In an landmark move, US District Judge Jed Rakoff has challenged a proposed settlement between the Securities and Exchange Commission (SEC) and Citigroup.The proposed settlement would end the SEC investigation of the allegation that Citigroup misled customers in selling them toxic mortgage securities as the housing market neared collapse.
After the collapse, taxpayers bailed out Citigroup to the tune of $45 billion dollars. Now, 3 years later, the SEC wants to conclude its investigation of the role of Citigroup in the financial collapse with a settlement where Citigroup does not have to admit any wrongdoing and only pays a $285 million fine.
Two years ago, Judge Rakoff called the SEC settlement with Bank Of America a “sweetheart deal” and now it appears he intends to directly challenge the proposed Citigroup settlement at a hearing on November 9.
The judge’s action is good news for taxpayers. In 2009 when he criticized the Bank of America settlement, government lawyers were forced to go back to re-negotiate.
The SEC accused Citigroup of misleading its customers in selling them toxic mortgage securities as the housing market neared collapse. The bank was fined five times the amount that had originally been proposed. Now he has told the SEC and Citigroup he wants answers to a number of questions. Here are his questions.
Why is there no finding of wrongdoing? What is the total loss to victims? What determined the settlement figure? Why is the fine less than the fine against Goldman? What reason is there to believe the settlement figure will have a deterrent effect? How will the SEC monitor compliance of Citigroup after the settlement? Why was the SEC unable to identify individual wrong doing? Why does the SEC categorize Citigoup’s conduct as only negligence, not fraud?
WOW, sign me up for a front row seat for the hearing on November 9. Let’s watch the SEC attorneys squirm when he asks them to explain yet another attempt to sell out the taxpayers.The judge has got some major mojo and I would not bet against him. Here is a guy who is seriously on the side of the 99% that pay taxes.
Meanwhile how about a round of applause for the judge. Send him flowers.
Better yet, let’s get him to head the Department of Justice and tell Eric Holder to pack his bags..