Jed Rakoff puts the SEC on notice

By Felix Salmon
October 28, 2011
hero for a while now, but his questions for the SEC with respect to its Citigroup settlement are truly great even by his standards.

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Jed Rakoff has been a hero for a while now, but his questions for the SEC with respect to its Citigroup settlement are truly great even by his standards. It’s worth transcribing them for internet posterity:

Pending before the Court is the proposed Final Judgment on consent in the above captioned case. The Court is required to ascertain whether the proposed judgment is fair, reasonable, adequate, and in the public interest. The Court will convene a hearing on November 9, 2011 at 3:00 pm to assist in this determination. Among the questions (without limitation) that the Court will want answered at this hearing are the following:

1) Why should the Court impose a judgment in a case in which the S.E.C. alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?

2) Given the S.E.C.’s statutory mandate to ensure transparency in the financial marketplace, is there an overriding public interest in determining whether the S.E.C.’s charges are true? Is the interest even stronger when there is no parallel criminal case?

3) What was the total loss to the victims as a result of Citigroup’s actions? How was this determined? lf, as the S.E.C.’s submission states, the loss was “at least” $160 million, what was it at most?

4) How was the amount of the proposed judgment determined? In particular, what calculations went into the determination of the $95 million penalty? Why, for example, is the penalty in this case less than one-fifth of the $535 million penalty assessed in SEC v. Goldman Sachs? What reason is there to believe this proposed penalty will have a meaningful deterrent effect?

5) The S.E.C.’s submission states that the S.E.C. has “identified… nine factors relevant to the assessment of whether to impose penalties against a corporation and, if so, in what amount.” But the submission fails to particularize how the factors were applied in this case. Did the S.E.C. employ these factors in this case? If so, how should this case be analyzed under each of those nine factors?

6) The proposed judgment imposes injunctive relief against future violations. What does the S.E.C. do to maintain compliance? How many contempt proceedings against large financial entitities has the S.E.C. brought in the past decade as a result of violations of prior consent judgments?

7) Why is the penalty in this case to be paid in large part by Citigroup and its shareholders rather than by the “culpable individual offenders acting for the corporation?” If the S.E.C. was for the most part unable to identify such alleged offenders, why was this?

8) What specific “control weaknesses” led to the acts alleged in the Complaint? How will the proposed “remedial undertakings” ensure that those acts do not occur again?

9) How can a securities fraud of this nature and magnitude be the result simply of negligence?

The parties should be prepared to answer these questions in detail at the November 9 hearing. In addition, the parties are permitted, but not required, to file with the Court written answers to these questions in advance of the hearing, provided such submissions are filed no later than noon on November 7, 2011.


My favorite, here, is probably #6, but they’re all great. I would not want to be the SEC’s lead counsel on November 9, especially given how Rakoff has treated the agency in the past.


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i like 3)

Posted by ottorock | Report as abusive

I would VERY much like the answers to Judge Rakoff’s questions.

Looking forward to the answers, if communications have been restored by then ; )

(* the EAS ‘test’ shutting down all communications systems begins at 2 am November 9.)

Posted by RoughAcres | Report as abusive

… and #7 is pretty good, though I think the best was saved for last.

Posted by RoughAcres | Report as abusive

No. 7 is great. Imagine what Wall Street would be like if supervisory structure were actually enforced throughout the entire Org Chart. The so-called “risk premiums” for salaries might actually make sense.

Posted by MiddleBrowser | Report as abusive

If the SEC is found to be (circumstantially) complicit, with Citi, in fraudulently representating this case before Rakoff’s Court, all the SEC’s lead officials on this case need to be prosecuted. The SEC’s just as guilty as Citi if there is fraud here.

Posted by Woltmann | Report as abusive


They are all great. Just when my belief in the existence of good men and women in the system begins to fail, someone like this steps up to the plate and does it right!!

At a time when there are too few things to cheer about, this man allows me the chance to say: “I am proud to be an American!!”

Posted by DriftingSpecter | Report as abusive

Rakoff to SEC: “I smell the horseshit, but where’s the pony?”

#6 is good because Rakoff probably already knows the answer, but wants to hear the SEC have to admit it in court.

#7 is the proverbial $64,000 question for all these cases.

Posted by Moopheus | Report as abusive

Personally, I think #2 is the key. How the hell can the SEC meet its institutional mission by settling on a case like this?

Posted by dspitzle | Report as abusive

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