Posts

Jed Rakoff to SEC: Do you think I’m a tool?

Judge Jed Rakoff has rejected the SEC’s proposed wrist slap of Citibank for selling mortgage-backed securities it knew to be of poor qualify.

Effectively, what he did was join this complaint with SEC’s complaint–filed at the same time as they filed the proposed Citi settlement–against a Citi employee, Brian Stoker, in which the SEC explicitly alleged that Citi knew what it was doing when it dealt shitty securities it intended to short. By doing so, Rakoff imposed the same trial process on this complaint as on Stoker. Effectively, he’s saying, “If you’re prepared to prove that Stoker knew what he was doing in selling shitty MBS, you’re prepared to prove that Citi did too.”

But the rest of his ruling focuses more generally on his demand that the SEC stop treating him–and federal judges generally–as tools of their efforts to cover over corporate crime. When he uses “tool” in this passage, I couldn’t help thinking he mean tool both literally, but also in the derogatory sense.

Without multiplying examples, it is clear that before a court may employ its injunctive and contempt powers in support of an administrative settlement, it is required, even after giving substantial deference to the views of the administrative agency, to be satisfied that it is not being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest. [my emphasis]

After showing that Citi changed its mind, once it became clear Rakoff would be judging the issue, about the standard for judicial review in such cases,

In its original Memorandum in support of the proposed Consent Judgment, filed before the case had been assigned to any judge, the S.E.C. expressly endorsed the standard of review set forth by this Court in its Bank of America decisions, i.e., “whether the proposed Consent Judgment … is fair, reasonable, adequate, and in the publc interest.”

[snip]

In its most recent filing in this case, however, the S.E.C.
partly reverses its previous position and asserts that, while the Consent Judgment must still be shown to be fair, adequate, and reasonable, “the public interest … is not part of [the] applicable standard of judicial review.”

Rakoff then went on to argue that fact finding was necessary to serve the public interest, repeating his angry language about being used by the SEC.

Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt,3 the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public
importance.

3 The Second Circuit has described the contempt power as “among the most formidable weapons in the court’s arsenal.”

At which point he really starts to vent.

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts–cold, hard, solid facts, established either by admissions or by trials–it serves no lawful or moral purpose and is simply an engine of oppression.

Read more

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including Vice, Motherboard, the Nation, the Atlantic, Al Jazeera, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse in Grand Rapids, MI.

SEC Inspector General: Yes, BoA Got Special Treatment

The WaPo reports that an SEC Inspector General report shows that the SEC gave Bank of America lenient treatment when it fined BoA for its funny business surrounding the Merrill Lynch acquisition, but did not place limits on BoA’s ability to issue securities that would normally be placed on a firm that violates securities law.

The inspector general found that the SEC showed leniency in the first settlement. He did not find that Bank of America’s status as a bailed-out bank affected the settlement’s price tag. Rather, he found that the SEC exempted Bank of America from other sanctions.

Like many of its competitors, Bank of America has long enjoyed a special status with the SEC that allows it to issue securities more easily.

Customarily, a firm that agrees to settle violations of securities law related to disclosures would lose this special status, thereby penalizing the firm with a lengthier and costlier process for issuing securities.

In settlement discussions with the SEC, Bank of America asked to retain that special status. The SEC, at first, declined, insisting that firms that violate the disclosure requirements of securities laws must suffer the consequences of those actions.

The agency reversed course in a last-minute meeting with Bank of America before the full commission voted to approve the settlement.

“In this meeting, BofA argued that the dire state of the financial markets made it critical that it be able to raise money quickly” by issuing securities, according to the inspector general’s report.

SEC officials decided to allow the bank to retain the special status because it had received taxpayer bailouts and “it would not be in the interest of the market or investors to prevent them from getting to the market,” according to the report.

This first settlement, btw, was the one Judge Jed Rakoff rejected, saying this of the settlement itself:

Overall, indeed, the parties submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S.E.C. with the façade of enforcement and the management of the Bank with a quick resolution to an embarrassing inquiry…

Mind you, this IG finding appears to represent the facade of oversight. In addition to finding the teeny fine and the way it was assessed to be no problem, SEC’s IG also had no problem with the way Treasury and the Fed were involved in the merger of BoA and Merrill Lynch.

The whole thing sort of makes you wonder about what other special treatment BoA has been getting all this time, all in an effort to avoid admitting that it is insolvent. Maybe Julian Assange can help us out there?

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including Vice, Motherboard, the Nation, the Atlantic, Al Jazeera, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse in Grand Rapids, MI.

NYC DA Morgenthau Blasts Feds On Financial Investigations

imagesThe Wall Street Journal has a fascinating and free ranging interview of New York City District Attorney Robert Morgenthau in today’s edition. Morgenthau, as you may know, is the real live template for the original DA on NBC’s Law & Order, Adam Schiff. Still young at age 90, Morgenthau will retire next Thursday after over 35 years as the chief District Attorney for New York.

The entire piece is well worth the read, but of particular interest, in light of the financial meltdown we have just lived through, and may yet again the way the Wall Street Banksters are cranking their same old casino back up, is the broadside Morgenthau lands on the Federal oversight and investigation of financial fraud.

These big criminal forfeitures support his $80 million budget, but they are also the product of Mr. Morgenthau’s unique legacy among district attorneys: his national and global reach. Such resources have allowed him to prosecute complex international business cases. Combined with his jurisdiction in the world’s financial capital, he has become in a sense the world’s district attorney.

Thomas Jefferson would have liked this bastion of local power as part of a federal system, but it is not always celebrated by federal officials. “I’m sure it [annoys] the hell out of them,” Mr. Morgenthau observes.

The feeling is mutual. The D.A. says that while he’s had to deal with the federal bureaucracy for decades, “it has just gotten worse” and “they ought to burn it down and start all over again. It’s extremely worrisome.”

For example, he says, “We had a lot of trouble with the Treasury Department” in his recent case against Credit Suisse, in which the bank coughed up $536 million and admitted to aiding Iran and other rogue nations in violating economic sanctions. The feds, as they did in a similar settlement with the British bank Lloyds, wanted only civil penalties.

Mr. Morgenthau would have none of it. He says Credit Suisse had been “stonewalling us” and only struck a deal after he threatened to bring criminal charges to a grand jury. “We would have gotten an indictment,” he says. (emphasis added)

It is a great snapshot of a one of a kind force of legal nature, Robert Morgenthau, and there are several other interesting topics; I recommend reading the entire article.

As to the portion of Morgenthau I quoted though, “Feds only wanted civil penalties and not interested in using criminal charges” to crack open the case and bring accountability for the Wall Street Banksters; sound familiar? It should, it is the exact same conclusion that blew the mind of SDNY Judge Jed Rakoff Read more

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including Vice, Motherboard, the Nation, the Atlantic, Al Jazeera, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse in Grand Rapids, MI.