Federal Judge Jed Rakoff of New York blasted the Securities and Exchange Commission (SEC) this week after it proposed what Rakoff said was a weak and inappropriate settlement with Citigroup for defrauding customers.

 

The bank sold $1 billion in residential mortgage-backed collateralized debt obligations (CDOs) to investors while lying to them about the quality of the investment (one Citigroup trader called it “dogshit”). It also bet against its own CDOs, earning $160 million in profit.

 

Citigroup customers, meanwhile, lost $700 million from the deal.

 

The SEC proposed that the bank be penalized $285 million, with $95 million going to victims, while not admitting any guilt. In fact, the agency wanted to chalk up the entire matter to mere “negligence” on the part of Citigroup.

 

“We’re not really serious that we would bring these folks to task,” Rakoff told SEC attorney Matthew Martens, adding the “net effect [of the settlement] is you’re only returning a small fraction of what investors were allegedly defrauded.”

 

Back in 2009, Rakoff fought with the SEC over their similarly weak settlement with Bank of America because BofA hid from investors the size of executive bonuses. Rakoff called that settlement “worse than pointless,” writing that the deal did “not comport with the most elementary notions of justice and morality.”

-Noel Brinkerhoff

 

Federal Judge Roasts SEC for Supine Citigroup Settlement (by Adam Klasfeld, Courthouse News Service)

Finally, a Judge Stands up to Wall Street (by Matt Taibbi, Rolling Stone)

Securities and Exchange Commission v. Citigroup Global Markets (U.S. District Court, Southern New York) (pdf)

Judge Rejects SEC-Bank of America Settlement as “Worse than Pointless” (by Noel Brinkerhoff, AllGov)

SEC and Bank of America Fight Back in Court over Weak Bonuses Penalty (by Noel Brinkerhoff, AllGov)