Comments on: Jed Rakoff’s fraught decision http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: FinanceChicken http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33824 Wed, 07 Dec 2011 22:08:48 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33824 The way I see Judge Rekoff’s argument, it seems the critical point is Citi’s lack of admission of guilt… and the fact that SEC ‘no guilt’ settlements are standard. Yes he has ‘painted himself in a corner’ but I still applaud his action because the ‘no guilt’ settlement issue might be the central reason that the financial industry has become such a den of fraud and criminality. There have been billions, possibly trillions of settlements paid, but guilt is never admitted (and nobody goes to jail).
The fine amount matters little, an admission of guilt is critical. SEC should be going after an admission of guilt because it would allow the rest of the legal system to work, it allows clients to get their money that was taken in the fraud (possibly even treble damages).

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By: Grinder74 http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33627 Wed, 30 Nov 2011 21:03:24 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33627 Too bad these kinds of court opinions don’t occur more often in the SEC’s cases against small operators and individuals. So Citi may double their penalty from 250mm to 500mm. Big woop. They’re still going to go on making billions in revenue. I on the other hand was literally driven into bankruptcy over non-proved/non-admitted/non-denied allegations. Wish I would have had a Judge Rakoff putting the SEC in their place instead of rubber-stamping everything they wanted.

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By: Anonymous http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33625 Wed, 30 Nov 2011 20:33:11 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33625 The SEC asked for a $285 settlement? LoL, great freudian slip.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33551 Tue, 29 Nov 2011 17:13:22 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33551 Sandrew, it factors through to chances of success in a jury trial surely?

Personally, i would have loved to see abacus go to trial, especially now Paulson is not the omnipotent god who shorted the housing market.

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By: Sandrew http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33550 Tue, 29 Nov 2011 16:55:19 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33550 hbw: I don’t see how the presence or absence of public sympathy for aggrieved investors is or ought to be relevant to the Commission’s settlement-litigation decisions. It’s not out of concern for particular aggrieved investors that the public interest would be served by pursuing civil litigation against Citi. Those private interests are served by the investors’ rights to pursue private civil actions. The public has an interest in the truth–i.e. whether and if so how Citi violated securities law. The SEC has for too long weighted this interest lightly, or as assumed that it is sufficiently served by non-admission settlements where the truth is merely implied to the extent money changes hands. The least the SEC could do is give the public some insight into their enforcement decision calculus.

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By: _hbw_ http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33543 Tue, 29 Nov 2011 16:33:01 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33543 “The party they are attempting to prosecute almost always has more lawyers and other legal resources to defend themselves with, and those lawyers are a lot higher paid than SEC lawyers as well. ”

The SEC almost always settles because they don’t have the resources to prosecute *lots* of cases. But, the SEC is very capable of prosecuting a major case against a major bank, no matter how many white shoe lawyers that bank hires. Several reasons: (1) the law favors the SEC — it has pre-litigation subpoena power, which means it can have a great case before it even files a complaint and it only has to prove negligence (private plaintiffs have neither advantage); (2) the SEC has very good lawyers — it is still, for a young lawyer especially, very prestigious to work at the SEC; they attract excellent attorneys; (3) the SEC and the government in general receive a huge amount of deference from judges and juries; (4) the SEC may not be able to assign 30 lawyers to a case, but it has 70 years of institutional knowledge and experience and the entire DOJ behind it — the resources of the federal government should never be underestimated.

If the SEC couldn’t prosecute any cases, they would never settle any cases. The ability to obtain good settlements is dependent upon a credible threat of trial.

That’s one reason the SEC might actually do well to take a synthetic CDO case through trial — it would help them up the value on future settlements.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33541 Tue, 29 Nov 2011 16:24:11 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33541 _hbw_, but as everyone knows when you design a product to fail it always always works out the way you expect and investors are always innocent dupes even when they are being paid millions to do the job of checking their investments. SEC might have a chance as long as they don’t worry too much about the facts.

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By: mfw13 http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33528 Tue, 29 Nov 2011 06:16:58 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33528 The reason the SEC almost always settles is that they are outgunned. The party they are attempting to prosecute almost always has more lawyers and other legal resources to defend themselves with, and those lawyers are a lot higher paid than SEC lawyers as well.

Basically, the SEC doesn’t have the legal resources or $$$ to actually prosecute a case completey, so they almost always settle for whatever they can get.

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By: Progdef http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33527 Tue, 29 Nov 2011 05:38:31 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33527 What? When are the ratings agencies taking the fall? I think Citigroup ought to get this deal – I am a shareholder. So I think I should get this deal.

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By: _hbw_ http://blogs.reuters.com/felix-salmon/2011/11/28/jed-rakoffs-fraught-decision/comment-page-1/#comment-33525 Tue, 29 Nov 2011 05:34:27 +0000 http://blogs.reuters.com/felix-salmon/?p=11278#comment-33525 Just thinking about the litigation optics of this for the SEC…

Citi took a half-a-billion dollar prop short on Class V Funding III. The fact that Citi settled that up for ~$160 million at the expense of the long investors who weren’t given disclosures looks good for the SEC.

But Ambac, a monoline insurer, took the long position on the super senior. Ambac was not just a “sophisticated investor” — its business model included insuring RMBS’s and CDOs and it had a substantial portfolio of CDS. Not sympathetic.

(Ambac had its own securities law problems — it got sued by a bunch of pension funds for misleading investors about the extent of its exposure to synthetic CDOs and its RMBS underwriting standards.)

The SEC’s complaint doesn’t name the subordinate investors, but says that they were hedge funds, investment managers and other CDOs. Not a sympathetic bunch.

The bottom line, I think, is that this is not the case — in terms of PR — that the SEC should be trying. Airing the facts will serve the public interest, but I doubt the public has much interest in the woes of a monoline insurer and a collection of hedge funds, other CDOs, and unnamed investment managers.

Now, their action — and subsequent quickie settlement — against JP Morgan about the disclosures for “Squared” at least had Thrivent as a sympathetic duped investor…

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