Matt Taibbi
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 youll 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 SECs dirty deal with Citi, but yesterday he took this story several steps further.
Rakoffs 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 SECs 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 judges chamber and explain theyve cooked up a deal, that the criminal doesnt 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 Rakoffs 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 didnt 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 dont have to consider whether or not this is in the public interest.
If you stand back and really think about what this argument means, itll 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, Were doing the right thing were just not doing it for the public.
Rakoffs 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 SECs 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 theres simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:
Read more: Federal Judge Pimp-Slaps the SEC Over Citigroup Settlement | Matt Taibbi | Rolling Stone
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 youll 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 SECs dirty deal with Citi, but yesterday he took this story several steps further.
Rakoffs 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 SECs 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 judges chamber and explain theyve cooked up a deal, that the criminal doesnt 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 Rakoffs 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 didnt 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 dont have to consider whether or not this is in the public interest.
If you stand back and really think about what this argument means, itll 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, Were doing the right thing were just not doing it for the public.
Rakoffs 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 SECs 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 theres simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:
Read more: Federal Judge Pimp-Slaps the SEC Over Citigroup Settlement | Matt Taibbi | Rolling Stone