SEC Would Rather Fight Judge Than Try To Win A Real Victory Over Citigroup

Back in November, a U.S. District Court judge in Manhattan rained all over the Securities and Exchange Commission’s Thanksgiving parade when he refused to sign off on the regulator’s $285 million settlement with Citigroup because — as is usual in these sorts of deals — the bank neither admitted guilt nor defended itself. But rather than take the judge’s decision as an impetus to push harder on Citi, the SEC reportedly just wants the court to stop being such a wet blanket and let it have its settlement already.

According to the Wall Street Journal, the SEC’s enforcement staff is expected to recommend that the agency vote to appeal the judge’s decision, in which the court stated the $285 settlement is “neither fair, nor reasonable, nor adequate, nor in the public interest” and is “pocket change” compared to the amount actually lost by investors.

One of the main reasons the judge blocked the settlement is that, like almost all such agreements between regulators and big businesses, nothing was actually entered into evidence, meaning he was to rule on the case without having heard either party’s side.

Since this is so standard, the Journal reports that the folks at the SEC are now gun-shy about moving forward on other settlements until, well… until this matter is settled.

“Everything’s come to a halt because the SEC doesn’t know what to ask for anymore in the settlements,” one source tells the paper.

In appealing the case, the SEC could go over the judge’s head and straight to the Second Circuit Court of Appeals.

Some experts say that such an appeal could have a larger impact. If the judge’s ruling is upheld, the decision could be set a precedent for other courts around the country to follow. And if the SEC succeeds, it could validate the whole “guilty but don’t have to admit squat” thing.

If the SEC doesn’t appeal, it could also refile the case as an administrative proceeding, taking it out of the courts entirely.

Barring either of these options, the case is currently slated for trial in mid-July.

Over at ProPublica, Jesse Eisinger makes the case for pushing the matter before the courts:

To overcome its greatest fear, the S.E.C needs to realize that it can win even if it loses. A trial against a big bank could be helpful regardless of the outcome. It would generate public interest. It would put a face on complex transactions that often are known only by abbreviations or acronyms. Litigation would cost the bank money, too. And it could cast the way Wall Street does business in such an unflattering light that even if the bank won, it might bring about better behavior.

SEC Cops Want to Fight U.S. Judge []

Needed: A Cure for a Severe Case of Trialphobia [ProPublica]


Edit Your Comment

  1. philpm says:

    The SEC doesn’t want the courts to know exactly how cozy they really are with the banks. That’s what their whining is all about.

    • Marlin says:

      I’m guessing people at the SEC don’t want to mess up their sweet job offers by upsetting the banks.

      • Sneeje says:

        As someone who works with them regularly, I can say this is categorically false. Consider how complex a situation this is, consider how many resources the SEC really has (compared to the banks), then consider what conclusion requires the least number of assumptions. I love a good conspiracy theory myself, but this requires far more collusion and competence than are possible.

        The simplest answer is a cost-value tradeoff: the bank thinks they can save money and time by not going to trial and the SEC thinks they have a less than 80% chance of winning given their resources.

        This isn’t, “we have your DNA on the gun, gunpowder on your clothes, six people saw you shoot that person, and you confessed.”

        • Inglix_the_Mad says:

          So… You’re saying the SEC needs more resources?

          Hmmm, how about we give regulators 1%-5% of the judgement as a tax free bonus. Point being every GUILTY plea or CONVICTION gives them a sizable chunk of tax free cash. Get some real sharks working for them. Put a little blood in the water…

        • kujospam says:

          No but the crime is it self can be considered multiple manslaughter for what some of the banks do. When whole businesses start effecting not just the customers, but their employees and the economy it self, it can indirectly lead to people losing money that what not supposed to be at risk at all. Which can cause stress, and complicate other medical problems, either directly(from the stress), or indirectly, they lost their job, or screwed up someones mortgage from no fault of their own (cannot afford and cannot get medical treatment.) Am I saying that is the case here? No, because I don’t even remember the full story from a month ago. All I’m saying is that corporations, just like people, need to be responsible on how they treat and affect others.

          • Sneeje says:

            My point wasn’t the seriousness of the crime, but how easy/hard it would be to successfully prosecute. This isn’t a situation where the evidence is clear and and convincing, with no doubt as to what was done and who did it. This is very murky territory, so with no guarantee of winning, a guarantee that it will take significant time and resources, they often choose to negotiate a settlement.

            • econobiker says:

              “but how easy/hard it would be to successfully prosecute.”

              Remember that the SEC didn’t want to go after Madoff even with obvious evidence…

  2. Hi_Hello says:

    if the judge didn’t do this…and the settlement went through…who gets the $285 million dollars?

    • Evil_Otto would rather pay taxes than make someone else rich says:

      Not Citigroup. That’s the only point behind these settlements: to punish the offenders financially.

      I agree with the judge in this case. $285m is not enough, and I’m sick to death of this ‘we’ll pay but we didn’t do anything wrong’ settlements.

      • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

        More precisely, “OK, OK, that was a scuzzy and borderline illegal business practice. Go ahead and fine us 25% of what we made on that practice. *sigh* We’ll cope somehow.”

    • Rachacha says:

      If it is like most government fines, it goes to the treasury department to be placed back into the general pot for paying for the government, but as this fine represents just 0.012% of the federal budget, it has minimal impact

    • keith4298 says:

      It was addressed in the Judge’s opinion. I suggest you read it. The SEC says they will most likely give it back to shareholders that were wronged, but under the law, they are not required to do so.

    • Buckus says:

      It goes to the operating budget of the SEC.

  3. Kaleey says:

    They did it again:

    “According to the Wall Street Journal, the SEC’s enforcement staff is expected to recommend that the agency vote to appeal the judge’s decision, in which the court stated the $285 settlement is “neither fair, nor reasonable, nor adequate, nor in the public interest” and is “pocket change” compared to the amount actually lost by investors.”

    Consumerist did this in the first article about this. Groan.

  4. SPOON - now with Forkin attitude says:

    yeah, I’d want more than $285.00 too.

  5. HalOfBorg says:

    Sounds like if the ruling stands that the SEC would have to actually start WORKING for a living – you know, PROVE what is claims – in court.

  6. longdvsn says:

    Side question for the lawyer-types out there: If the SEC appeals this judge’s decision – how does that case get heard in the appellate court? Both sides (Citi and SEC) would be arguing the same – to accept the settlement. Who would argue for the judge’s position to throw it out? Does that judge appear to argue his own decision?

    • Loias supports harsher punishments against corporations says:

      I don’t believe so – the judge decision stands as-is, and the new judge has to weigh the “arguments” of Citi and the SEC against the judge’s decision. In this case, the new judge simply has to decide if the original judge’s ruling was reasonable or not.

      Yes means nothing changes, no means, I believe, that it would be brough back down to the lower court for trial.

    • keith4298 says:

      Appeals can generally only be taken after a disposition – this would be interlocutory (during the case – as opposed to after it’s ended). Most likely, they would ask the second circuit Court of Appeals for a Writ of Mandamus — a mandamus is basically a legal way of saying, please for the Judge in my case to do something. In this case, it would be to mandamus the Court to accept the agreement as written.

      (nothing should be construed as legal advice)

  7. r-nice says:

    Why is the SEC fighting this?

    • axhandler1 says:

      Makes it pretty clear where their interests really lie, doesn’t it?

    • dush says:

      They are so used to taking the easy way out with settlements they don’t know how to really prosecute anymore. They litterally don’t know what to do now!

    • Loias supports harsher punishments against corporations says:

      Because they’ve been comfy just fining companies a pltry amount and getting 100% victory.

      Now they have to work for it. Though the rewards could be greater, failure is more likely. Or so they think.

    • CubeRat says:

      According to the article I read, no one else is now talking to the SEC on settlements, and is going to let the SEC take them to court. This will take quite a bit longer and require the SEC to have more evidence to win their cases.

      So, the SEC is hoping that by appealing, and winning an appeal, they will be able to get more cases settled through enforcement actions (as they usually do) than by having to fight in court.

      FYI, I noticed that the SEC has also asked Congress for permission to increase the penalties on financial firms and individuals that commit fraud.

    • Mr. Bill says:

      They are owned by the one percent.

    • MrFuzzums says:

      Never attribute to malice that which is adequately explained by stupidity. – Hanlon’s Razor

      It’s entirely possible that neither side wants this to go to trial simply because it would expose legally and ethically dubious actions on the part of Citigroup and gross negligence/incompetence/duplicity on the part of the regulatory agencies like the SEC.

  8. maruawe says:

    I agree with the Judge these businesses are getting away unscathed by not admitting guilt,when in fact they are guilty and the settlement is not enough to make a difference about how the bank does business..

  9. Lyn Torden says:

    The SEC should just pursue the case all the way through court and get a judgment against Citi for the entire amount lost by investors, plus punative awards, plus legal costs.

  10. sweetgreenthing says:

    Wow, SEC, at least pretend you aren’t fondling both parties under the covers.

  11. steal_this_book says:

    The amusing thing is that JP Morgan is getting blowback by their reliance on the whole “bribe the SEC to make shit go away” system. They’re insured against liability for a number of sloppy or fraudulent behaviors, so generally an SEC fine would just be passed on to an insurance company with no real cost to the company.

    Since the boilerplate settlement language essentially makes it out that nothing really happened, JP Morgan’s insurer is pushing back and refusing to pay the settlement. They don’t see any reason to pay out against a liability that legally speaking was never actually incurred.