Citigroup and SEC’s Shapiro Get an Earful from Judge Rakoff

CitiBank has no business being in business. It failed as a business at least three times in the last twenty years. Got bailed out each time. Not only that, like many other banks where fraud is a business model (thank you, Karl Denninger), Citi got caught committing fraud several times. Each time they were caught, they ‘settled’ the case without admitting any wrong doing. Recently Citi entered another such shady settlement deal with the SEC.

The Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest.…

Most fundamentally, this is because it does not provide the Court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards. Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

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“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,” the judge said. “Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.“

Yes. Fraud has long been a business model at Wall Street IBs. They steal billions and settle for millions without admitting any wrong doing or without anybody going to jail.

Just as we have resigned to this fate, finally this one federal judge who stands up to these thieves at IBs and the scoundrels at SEC who breach public trust. Judge Rakoff, kudos, sir!