A federal judge in New York has rejected Citigroup’s proposed $285 million settlement with the Securities and Exchange Commission. Judge Jed Rakoff issued a stern challenge to the government’s recent history of imposing “relatively modest” punishments on big Wall Street banks for wrongdoing during the financial crisis. Judge Rakoff, a highly-respected judge in Manhattan, issued his sharply-worded order on November 28th. The settlement, if approved, would have allowed the bank to avoid admitting it defrauded investors over toxic mortgage securities. Judge Rakoff said that other similar settlements had not stopped banks from breaking the law, and added that the fines are “pocket change to any entity as large as Citigroup.”
Judge Rakoff’s order echoes public anger that the banks have been let off too easily for their role in causing the financial crisis that peaked in 2008. It also has the potential to affect future fraud cases that the SEC enters into with Wall Street firms that do not want to admit they violated the law — a key step that helps shelter them from further civil litigation.
Judge Rakoff has been a vocal critic of SEC settlements. He has a history of shaking up the financial industry after a career in the U.S. Attorney’s office in Manhattan, where he prosecuted securities fraud. In the Citi case, Judge Rakoff must approve any final settlement. He said in his order that barring a new settlement that meets his requirements, the two sides should prepare to go to trial in July.
Judge Rakoff said the approach by the SEC in settlements has let the banks off too easily and denied the public its right to know what happened. He wrote in his order:
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.
This is not the first time Rakoff has questioned a settlement between the SEC and a big bank. Most famously, he criticized the agency’s willingness to settle with Bank of America Corp. after the bank was accused of misleading investors about its purchase of brokerage firm Merrill Lynch.
Source: Los Angeles Times
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