WE NEED MORE JUDGES LIKE THIS ONE

The MOTU have gotten away with robbery under law for decades in part because of the spinelessness of the SEC and other regulatory agencies. Until now...

Judge blocks Citigroup-SEC settlement
By Grant McCool and Jonathan Stempel

NEW YORK | Mon Nov 28, 2011 5:58pm EST

(Reuters) - A federal judge angrily threw out Citigroup Inc's proposed $285 million settlement over the sale of toxic mortgage debt, excoriating the top U.S. market regulator over how it reaches corporate fraud settlements.

U.S. District Judge Jed Rakoff in Manhattan said that in agreeing to the settlement, the U.S. Securities and Exchange Commission appeared uninterested in actually learning what Citigroup did wrong. He also said the regulator erred by asking him to ignore the interests of the public.

"An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous," Rakoff wrote in an opinion dated Monday.

"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," he added.

Rakoff called the settlement "neither reasonable, nor fair, nor adequate, nor in the public interest," and said it was hard to tell whether by settling the SEC was getting more than "a quick headline." He set a trial date of July 16, 2012.

The judges objection to weasel words - "the firm neither admits nor denies wrongdoing" - may lead to profound changers for how the banksters operate:

Citi Ruling Could Chill SEC, Street Legal Pacts
By JEAN EAGLESHAM And CHAD BRAY
NOVEMBER 28, 2011, 8:06 P.M. ET
WALL STREET JOURNAL

But the focus of his concern was the boilerplate language used in settlements by the SEC for nearly 40 years. This standard formula, in which the firm neither admits nor denies wrongdoing, was "hallowed by history, but not by reason," the judge said.

He said the public had a clear interest in knowing the truth of what happened, while the court could only decide whether a settlement was fair on the basis of admitted facts, which aren't present in pacts where there is no admission of wrongdoing.

This is what scares the MOTU:

Behind Rakoff’s Rejection of Citigroup Settlement
By PETER J. HENNING
November 28, 2011, 5:14 pm
NY Times

The crucial question is whether Judge Rakoff’s decision could lead to an end to the S.E.C.’s policy of settling its cases without any admission of liability by the defendant. Although Judge Rakoff is only one federal district judge, his approach may be influential with other judges who do not wish to be seen as mere “rubber stamps” for the S.E.C.

The rationale for the settlement policy is rooted in a doctrine called “collateral estoppel,” by which a party can use the outcome in one case against the losing side in a second proceeding. For example, if the S.E.C. were to win a judgment against Citigroup, establishing that it defrauded the purchasers of the securities, then these purchasers could rely on that decision to prove their own individual fraud claims against the bank. Citigroup would be “estopped” from denying that its actions violated the law because that issue was already proved in the S.E.C.’s case.

The S.E.C. policy regarding settlements allows the agency to announce a victory, while the defendant does not acknowledge a defeat, so the settlement cannot be used against it by private plaintiffs.