Today, I saw a MASSIVE signal that the OWS movement is inspiring those who work within the system to grow a backbone and actually do something.
Today, a NY Judge, Jed Rakoff, threw out a proposed settlement between Citigroup and the Securities and Exchange Commission (The SEC, if you need a refresher, is in charge of enforcing federal securities law and regulating the securities industry).
The settlement was for $285 million, over a case where Citi allegedly bundled up some crappy mortgage-backed securities, sold them off the investors, and then simultaneously shorted (i.e. bet against) the same securities. Citi made $160 million off the deal, and investors lost $700 million.
Settling would have allowed Citi group to avoid having to admit any guilt at all. All the SEC charged them with was “negligence.” They did NOT charge them with “scienter” which is legal-speak for fraudulent intent. This is despite the SEC having referred to Citigroup in a memo as a recidivist (a habitual criminal). Judge Rakoff states in the ruling: “By the S.E.C.’s own account, Citigroup is a recidivist, SEC Mem. at 21.”
Settling also would have allowed Citi to avoid going to court, where the case would be argued out in public and put before a jury, and should they lose, they could be subject to FAR more in fines than the $285 million they were trying to settle for.
Essentially, the SEC was offering Citi a slap on the wrist. Usually, judges just rubber-stamp these settlements.
But not this time. This time, Judge Rakoff threw out the settlement, insisting it must go to trial. His ruling is really a smack-down of both Citigroup and the SEC. He doesn’t really pull any punches.
Here are a few choice quotes (emphasis mine):
“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 of by trials — it serves no lawful or moral purpose and is simply an engine of oppression.”
Another choice part of the ruling:
“Finally, 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. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”
The full ruling is here, and really worth a read:
This is one of the strongest signs yet, in my opinion, that not only is the world watching, but our movement is holding the powers that be accountable, and our allies are all emboldened by everything we do. Now, to be fair to Judge Rakoff, he’s expressed doubt over these settlements in the past:
He “reluctantly” approved a $150 million settlement between Bank of America and the SEC last year, after calling the deal “half-baked justice at best.”
But today he seems to be willing to go further than he has before.
The broader implications of this was summed up quite nicely by Adam Sorensen in Time:
Monday’s decision could have implications beyond Citibank. Settling out of court with no admission of wrongdoing has frequently been the SEC’s modus operandi in cases like this. If political momentum built in the wake of Rakoff’s ruling and other judges picked up his banner, Wall Street could face a level of scrutiny it has so far avoided.
Pat yourself on the back today, Occupy Wall Street. The world is starting to change.