Too cosy with the banks? Not us, says SEC

Stephen Foley

94284893 300x237 Too cosy with the banks? Not us, says SECExplosive judgment by Judge Jed Rakoff today, rejecting SEC’s $285m settlement with Citigroup over a dodgy CDO deal during the credit bubble.

Here’s the SEC blasting back in a statement from Robert Khuzami, Director of the SEC’s Division of Enforcement:

“While we respect the court’s ruling, we believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial.

“The court’s criticism that the settlement does not require an ‘admission’ to wrongful conduct disregards the fact that obtaining disgorgement, monetary penalties, and mandatory business reforms may significantly outweigh the absence of an admission when that relief is obtained promptly and without the risks, delay, and resources required at trial. It also ignores decades of established practice throughout federal agencies and decisions of the federal courts. Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court.

“The settlement provisions cited by the court have been included in settlements repeatedly approved for good reason by federal courts across the country – including district courts in New York in cases involving similar misconduct.

“We also believe that the complaint fully and accurately sets forth the facts that support our claims in this case as well as the basis for the proposed settlement. These are not ‘mere’ allegations, but the reasoned conclusions of the federal agency responsible for the enforcement of the securities laws after a thorough and careful investigation of the facts.

“Finally, although the court questions the amount of relief obtained, it overlooks the fact that securities law generally limits the disgorgement amount the SEC can recover to Citigroup’s ill-gotten gains, plus a penalty in an amount up to a defendant’s gain. It was for this reason that we sought to recover close to $300 million – all of which we intended to deliver to harmed investors. The SEC does not currently have statutory authority to recover investor losses.

“We will continue to review the court’s ruling and take those steps that best serve the interests of investors.”

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  • napalmgod

    You should note the lack of any response to the Judge’s declaration of Citigroup being a serial offender, which is the underpinning for all the rest of the charges. The Judge makes several good points:
    If there is no declaration of guilt, how can we determine serial offenders?
    Since Citigroup already has a dozen similar rulings against it, why has the SEC not moved towards a more punitive fine?
    Why has the SEC not charged the bank employees who set this up and actually broke the law?

  • mahavati

    I fear the SEC is more overwhelmed by the complexities surrounding your modern financial scam perpetrated by the likes of Citi and Goldman Sachs rather than in cahoots with the perpetrators. But I do know that the pedlars of scams when found guilty are only getting away with slaps on the wrist and it is getting more and more important that someone is sent to jail. If they keep getting away with it the general public is going to lose all respect for the law and hold the law in as much contempt as they do the bankers.

  • ram2009

    The SEC is not much better than our own FSA.   Thanks to the occasional judge in the US who does not kow tow to the financial sector some of the perpetrators actually go to jail there.

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