Three cheers for Jed Rakoff

By Felix Salmon
August 6, 2009
Jed Rakoff is my new hero: he's put the kibosh on the proposed $33 million settlement between the SEC and Bank of America, on the grounds that BofA is admitting no wrongdoing, and there's no indication of how the sum was calculated.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Judge Jed Rakoff is my new hero: he’s put the kibosh on the proposed $33 million settlement between the SEC and Bank of America, on the grounds that BofA is admitting no wrongdoing, and there’s no indication of how the sum was calculated.

I hope this sends a clear signal to Mary Schapiro: quiet bilateral settlements with companies should come to an end, and as a rule all companies paying fines should at the same time admit, in public, exactly what they did wrong. All too often companies spin SEC fines as a cost of making legal trouble go away, rather than a real indication that they made a serious mistake. They shouldn’t be allowed to do that.

19 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

hey felix i really enjoy your writing, i started following you at portfolio along with jesse eisenger, i have found your new blog, do you know where jesse is writing these days???

Posted by ian August | Report as abusive

Judge obviously overplaying his hand, I wonder how he is able to better determine what is more equitable than the SEC?

Posted by Terry | Report as abusive

Let me get this straight. A group of senior executives has been caught slipping billions in dodgy bonuses to a group of employees without telling the shareholders, so now the company, ie the shareholders, must pay a fine of $33m. Sounds fair.

Posted by nwf | Report as abusive

Ian, Jesse has just joined ProPublica, but afaik hasn’t published anything yet.

Posted by Felix Salmon | Report as abusive

Aside from the miniscule fine (GE got one a few days ago too), why does the SEC ever settle for no admission of wrongdoing? Given that they are an enforcement organization, what the f*** are they doing if they aren’t actually finding any wrongdoing?

I think they need to make the SEC/Corporate relationship more confrontational and incentivize the SEC based on the number of heads and amount of money that they bring back.

Maybe they should also adjust penalties to a % of total revenue or amount of money transferred in the charges.

Posted by PM | Report as abusive

As far as I know in the American Justice system, to accept a plea bargain is to explicitly accept wrongdoing. In criminal proceedings, a description of the wrongdoing must be made by the defendant and accepted by the presiding judge and prosecuting attorney. Why is it that corporate ruling fall outside thes parameters? Is there not a criminal complaint of fraud involved here, just being handled by a different jusidiction? While I realize that no gov’t official will EVER step up and question things like the duplicity in the justice system, it’s a situation where I believe as many people as possible need to be made aware so that perhaps, eventually, there can be a big enough outcry that the system can right itself.

Posted by the Shah | Report as abusive

I’ve always assumed that these companies just see these fines as the government wanting its share of the take should the company get caught.

Posted by Tom Cole | Report as abusive

Terry, Judge Rakoff is able to determine equity because he is, you know, the JUDGE. Who is entrusted with the legal responsibility to determine the fairness of settlement agreements in cases brought in his court.

the Shah, cases brought by the SEC are civil matters, not criminal. The DOJ prosecutes federal criminal matters. A settlement agreement is not a plea agreement. Moreover, even in criminal cases pleas can be entered that do not require an admission of wrongdoing.

Rakoff can be a bit of a maverick– he declared the death penalty unconstitutional — but he’s a very sharp judge.

Posted by Shawn | Report as abusive

This is the same judge who gave $4.3 Billion penalty in Motorola versus Uzan case against Uzan. He is clearly not satisfied with peanuts.

When SEC settles for a peanut, where does that peanut go? What does public gain? It seems to me SEC is totally useless for public. It only works for employing lawyers.

Posted by Proton | Report as abusive

Three points:

(1) The SEC does not have criminal prosecution powers — it is authorized only to bring civil lawsuits, which is what this is. Virtually all civil lawsuits in the US that settle do so on an agreement to neither admit or deny the conduct that the suit challenges. If you don’t like that this is how the SEC settles cases, your beef is not with the SEC but with the whole civil justice system.

(2) And yes, good call by Judge Rakoff to slow the process down and scrutinize the settlement. Judges are theoretically gatekeepers who provide a useful outside check on SEC settlements, but too often they just rubber stamp whatever agreement the SEC and the defendant have mad.

(3) @Proton: “When SEC settles for a peanut, where does that peanut go?” It used to be that penalties and disgorgement recovered by the SEC went into the general Treasury fund, but Sarbanes-Oxley created a procedure whereby penalty money can be put into a special fund and used to pay back injured investors. I don’t know if that is how this settlement is set up, but it’s pretty common these days.

Posted by JC | Report as abusive

Felix,

Judge Jed did more good than you even imply. He did not merely say that the company admitted no guilt, he said that the whole truth was not brought to light, and also that the fine might be paid out of government money.

He is a very talented judge, and does not shy from controversy. The third branch of government (per M Lewis) has not yet been bought by Goldman Sachs.

Posted by Bob Goodwin | Report as abusive

Felix, thanks for the airtime on your blog! Personal mission accomplished. With friends like you, the Federal government will spend several million dollars more on this issue and end up with the same settelement. Deep down I know this is rediculous, but I love the airime! Cheers – Judge Jed Rakoff

Posted by KJB | Report as abusive

“Judge obviously overplaying his hand, I wonder how he is able to better determine what is more equitable than the SEC?”

What!? We are speaking, aren’t we, of the same SEC who so daftly handled Madoff? And the point I believe you are missing is that what Judge Rakoff is requesting is to know HOW they calculated that particular figure and, further, to determine individual responsibility pertaining to the Lynch bonuses.

There are two salient issues here. One is if shareholders were lied to when given information about the merger. If fraud by deceit was committed, then the individuals who committed the fraud should be brought forward. Why should they get to hide behind a corporation?

Secondly, since both of BofA’s bail outs are being paid for by tax payers (the need for the second one being CAUSED by having to pay out the Lynch bonuses), I think it’s fair and adequate that the judge request accountability.

Why shouldn’t we question the SEC? Why shouldn’t we find out the reason for fining them 33 million in exchange for no one getting named? Seriously, sitting back and believing that we shouldn’t question their actions or taking the position that “they know best” is one of the most naive points of view I have come across on an otherwise intelligent blog in years.

I give overwhelming kudos to Judge Rakoff.

Posted by PeachPie | Report as abusive

Finally a person of authority responds to the real problem, let’s hope this catches hold and more of the bloodsuckers damaging our economy are brought down and/or dealt with legally.

Posted by Ken Buchanan | Report as abusive

Coming around like the Spirit of Justice in flight… itself… to peer in on the Honorable Judge Jed Rakoff. … Looking for one righteous person. One.

Yes, a consistent Spirit. Looking for some consistency. A consistency which opposes indulgence and abuse, and that specifically in financial matters.

http://blogs.reuters.com/felix-salmon/20 09/08/06/three-cheers-for-jed-rakoff/#co mment-5153

“… The SEC does not have criminal prosecution powers — it is authorized only to bring civil lawsuits, which is what this is. Virtually all civil lawsuits in the US that settle do so on an agreement to neither admit or deny the conduct that the suit challenges. If you don’t like that this is how the SEC settles cases, your beef is not with the SEC but with the whole civil justice system.”

Granted a righteous person is hard to find. I see item one (1), from the above link and I duly understand this limit is set up, just so, to give the SEC the appearance of doing all it can. Just so, but not necessarily just. I think you would agree.

It is a pithy or petty fall back position of those who are not properly diligent or zealous against abuse, when too much abuse in financial matters seem to multiply beyond levels that are tolerable. And this during an economic crisis mind you. They have done all they can – its a civil matter and that is why they are being civil with Bernard Madoff and the guy from Texas whose accounts have been frozen before his trial has even begun. …

When in the south, a Hurricane arises, or a flood, people are prosecuted for much less indulgence – during time of emergency or crisis. Prosecuted. Yes sir. Prosecuted. By name. And they are not given a settlement option which does not name them as an offender, outright – during a crisis.

As for relieving the SEC of any responsibility or “beef” as it is worded, I have this to say: My grievance is legitimate. I speak for 10,000 if not for more.

10,000,000. And note this in Spirit as well…

To integrity and preservation of decorum in our society: The SEC can duly recommend criminal prosecution, to the Court, and to the proper criminal proprietorial body. It is their business to do so. And they cannot shirk this ethical and moral responsibility, without it reflecting on their intent, to serve out an unjust result on the public, and to do so with contempt, by hiding behind a lax ideology, or duplicity, that it would in turn be repugnant or destabilizing, for them to posture as ineffectual creatures in a regulatory role.

Furthermore, the SEC can also make recommendation for public censure; with both the SEC and FINRA. Failing this is to note the turpitude and incompetence of every officer of the SEC and the five commissioners, of that organization: Providing an model of omission, suborning the more vigilant and zealous for good causes: A mentoring example of how the corrupt and compromised, who give pretense of being good regulators, yet act with to spite the American public. For such inaction and failure to make formal recommendation, is play for the amusement, of the financially perverse; the most wicked see this as well. And they calculate judgments by it.

Then at this moment, should it be accurate, decorum in society with these people, is under-run. What follows is the SEC acting to put justice in the hands of the public; when the SEC should be acting as a prosecutor and not leaf blown around by the whim of the financial institutions it claims to regulate.

Where they cannot genuinely reach, because of some excuse, they should be diligent to make such recommendations FORMAL.

There is no excuse for FAILURE to make such recommendations professionally and formally. NONE.

Where they fail, because of vice, corruption, turpitude or technical disregard for the public, it falls on the Court, itself to make these recommendations or require the SEC to start including them, because, some abuse, during a crisis, cannot be tolerated.

A quiet Spirit of truth takes lands aloft, each day, that you can safely distinguish a warning. Safely as it is more of a comfort to everyone. Then heed this fair thing: Failure to prosecute or duly recommend prosecution, can result in provoking ire and unrest in a culture, such as, endangers the parties who might otherwise be prosecuted, by their authority. Can also, endanger anyone who is slighted by this, such as another financial adviser who has done nothing wrong. Can also in one fell swoop of regulatory ignorance, endanger executives of any bank, in any city in the United States, who have lost favor in their community, not for any wrong act they have performed, but more so, because of the wrongful acts of others in New York, which were NEVER prosecuted nor recommended for prosecution, in accordance with standing law:

1)Actual Fraud
2)Constructive Fraud
3)Fraud in Factum
4)Professional Misconduct
5)Fraudulent Concealment
6)Intent to Defraud
7)Fraudulent Conversion
8)Abuse of the Elderly, where deception and fraud has served to mislead senior adult or adults.
9)Group activity, group acting in common purpose.

You and I both know, that when a group of two or more act in an unlawful or common purpose, such as to deceive an elderly person about a proxy vote, by method of overt deceit or by method of concealing information that they had a duty to disclose, this is an offense encroaching an area of law, that, does not require production of the actual agreement itself: The standard of evidence is lowered in these criminal circumstances and prosecutors need only show the acts or omission which serve in the common purpose, such as to deceive, which results in a criminal act, such as, fraudulent conversion, of other people’s money into executive wealth or personal wealth of persons at the firm benefiting from the dishonest activity, of the group. The deeds and omissions themselves, are sufficient to prove in a Court of Law, that there was an agreement as, the actors in such cases, do not, ever, come out and confess of their turpitude because, it is so repugnant.

Now to this end. Shall you let the SEC shirk their responsibility to protect the public, shirk their responsibility to recommend prosecution, where it is long over due, then it would be easy, in Spirit, to find a third strike and by this deliberate course, bring to bear, the Court of Public Opinion. And decision from this Court. Justice needs be served. The Spirit of Justice. If not to serve as a meaningful deterrent, then in the least to preserve decorum in society.

If decorum is what you value, or what the majority of financial professional value, then it would be grotesquely negligent for the SEC to fail in making recommendation for criminal prosecution formal.

Curiously the SEC acknowledges the dishonesty but acts itself, to conceal the names of the offending individuals who engaged in the financial deceptions aimed at shareholders.

Ms. Schapiro’s SEC fails to do even the bare minimum as concerns protecting the public from more of same, at least giving the names of the offenders and recommending censure, so the public can perform due diligence and see what they were sanctioned for.

Concealing the names of the mischief-executives and persons who engaged in the financial deceptions, is an offense perpetrated by the regulatory agency itself. The officer on the complaint for the SEC is a New York based agent by the name of David Rosenfeld. Probably expecting a job promotion in a year or two, and to a firm that pays far more than the SEC.

The SEC fails once again in its mission, to protect the public from abuse in financial/investing related matters.

Mary Schapiro’s regulator authority and skill as a prosecutor, is questionable at this first sign of what the SEC looks like under her leadership. It is really not leadership. She was probably selected for her tendency to do what she is told. And what is she being told to do? Serve the interests of the top 1 percent? Notice the complaint by the SEC and their press releases use 13-15 pages and at no time to they mention the public interest or concern for systemic risk to investor trust or to the American public if this behavior multiplies – after already being at maximum threshold levels.

Her agency is trying to jump this settlement off in the court, in flash-bang style. Stinging the eyes and ears of observers. Hoping the judge signs it complacently.

But the omissions referenced above tell the true story, and reflect badly on her integrity as a person and regulatory substance: In failing to prosecute the abuse, she pushes the public into a demoralizing corner, where they are expected to have trust in the bankers, while knowing that even when the SEC watches them, they do not get punished for even the most basic of deceptions: Concealment.

At present, Mary Schapiro’s SEC is obviously not concerned about restoring public trust.

Ms. Schapiro fails to even protect the good and distinguish them from the bad. By failing to make example of bad bank executives, recommend prosecution or censure, public trust continues to be suspended. She does not name them now and denounce them having a perfect opportunity to make example and tell the investment world, what is NOT tolerated. Being weak or does she purposefully do her worst, trying to leverage inaction, so to ask for more power and funding … ? whatever the reason for her inaction, while she and the other committee commissioners are at the top, nobody knows who the good actors are from the bad actors! Naturally, this favors the bad actor, by making them look better in company with the good. But the good banker, suffers from being mis-trusted, because everyone else, does not know the good from the bad. The simple default is that none can be trusted or respected. …This is a long term branding many bank executives and financial advisers will underestimate. And being with the SEC, many commissioners will try to minimize.

Mary Schapiro is as much what is wrong with the SEC as was Christopher Cox. As much what is wrong with America, as overly-indulgent-executives at Goldman Sachs taking turns with Hank Paulson and Jamie Dimon, to sucker-punch-the-Country-while-they have the common-strapped over thebarrel-ofhighspeedoiltrading set-to count time, with cost of lumber going up, while a bundle of “toxic assets” is leveraged in their ribs by Ben Bernanke and Lloyd Blankfein acting together in the intimidation.

Schapiro comes in following the abuse and winks aside white collar criminal behavior and group acting in dishonesty scheme.

She has no sense of integrity or fortitude in how to manage a case, so that it serves as a lasting deterrent to future generations.

The SEC should have just wrote at the top of this Settlement “GET OUT OF JAIL FREE CARD, signed by Mary L. Schapiro.” Pass go, collect your 200 million dollars, advance to boardwalk. And bring your wheel barrow with you for the next you pass go, we are going to load up YOUR cart by converting tax payer money into executive wealth.

http://www.youtube.com/watch?v=lWdG8NoFX Y0&feature=related

She is an enemy of the United States, who fails to recommend criminal prosecution, where criminal prosecution is warranted.

An enemy.

Whay can;t we have a nation of jurists like Judge Rakoff? Smary, fair, and truly independent. His ruling is wonderfully written, and shouldbe bulletproof from attack on a mandamus to the Second Circuit. Bring on February and let;’s get to the bottom of what these SEC and New York lawyers REALLY have in their trial bucket!

Posted by Lary 62308 | Report as abusive