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No Deal Yet For SEC And Citigroup

No Deal Yet For SEC And Citigroup

Frustration at the banking sector and the government’s approach to regulation and enforcement is not relegated to the world of progressive blogs and Tea Party rallies.  It would appear that the judiciary has caught a case of it too.

Late last week Washington D.C. federal district court judge Ellen Segal Huvelle, refused to approve the landmark and controversial settlement between the Securities and Exchange Commission and Citigroup that had Citi paying $75 Million in connection with fraudulent practices pertaining to subprime lending and disclosures.  The SEC had accused Citigroup of repeatedly making misleading statements concerning the extent of its subprime holdings both in calls with analysts and in regulatory filings.

In exchange for payment of the $75 million the bank neither admitted nor denied the SEC’s allegations and made a promise to refrain from future violations of securities laws.  Hardly a concession with any teeth for a company that received $45 billion in government rescue funds.

According to The Wall Street Journal, and The Washington Post the judge said she was “baffled” by the agreement between the parties and could not, under the given circumstances, agree that the settlement was “fair and reasonable”.    Among concerns cited include questions concerning the depth of the SEC investigation and just how it determined the $75 million penalty.  The judge also questioned the SEC’s decision to name just two individuals in the suit when the allegations concerned widespread miscommunications and efforts to shield the banks subprime exposure from shareholders. 

The heart of the judge’s concern was why shareholders should ultimately bear the price of the SEC sanction rather than all of the senior executives who were involved in the misstatements– concerns that had been expressed earlier when the settlement between the SEC and Bank of America was rejected as reflecting a “cynical” relationship whereby the agency could argue it was penalizing the industry but levy sanctions that were, by all intents and purposes, meaningless in comparison to the conduct at issue.

Just because the deal has been rejected right now does not mean it is dead.  The judge asked the parties to submit additional briefing on her concerns which is due to the court mid-September.  In the meantime though it is nice to see the separation of powers in action.  We know that Wall Street will not effectively police itself.  And so far the regulatory agencies (with a few minor exceptions) have shown themselves too weak-willed or comfortable with the private sector to do any meaningful enforcement.  That means it is up to the judiciary to force both the SEC and Wall Street to abide by the law.  So far it’s been the work of a few strong district court judges to really try and right the wrongs done from the past decade-and-a-half of deregulatory free-for-all that was the 1990′s.  I’m glad someone’s doing their job.

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photo courtesy of Mike Licht, NotionsCapital.com via Flickr

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27 comments

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10:13AM PDT on Sep 6, 2010

Since the SEC did not do its job of oversight of Wallstreet, thus contributing to the economic meltdown, why are they being allowed to broker deals now? If someone defrauded a local bank or business, they would be on their way to jail. We need a serious overhaul of the financial system, including regulation and bureaucratic firewalls that prevent conflict of interest. As long as the crooks are in charge, we will have a crooked outcome. The courts can only do so much. They can only consider what is brought to them, not intervene beforehand.

1:41AM PDT on Sep 2, 2010

make them small or go 'poof'!

4:29PM PDT on Aug 30, 2010

Thanks.

8:20AM PDT on Aug 29, 2010

thanks noted

12:10AM PDT on Aug 27, 2010

Must stricter over-sight of the banks is needed.

If anything brings this country to it's knees if will be the banks and corporations.

PLEASE STOP THEM, NOW, NOW, NOW

Take care,
JO

8:03PM PDT on Aug 25, 2010

This country can be nuts sometimes.

2:05PM PDT on Aug 25, 2010

Did anyone reading this really expect a solution?

10:33PM PDT on Aug 24, 2010

Did you expect anything less in this corrupted system we sopposedly ended the Mafia so congress the senate big corporations and corrupt judges could do exactly the same thing. And republicans or democrats we stiull lose as both parties suck big businesses anuses.

5:19PM PDT on Aug 24, 2010

Two points Hon. Huvelle. Believe that our country is sorely in need of more like her. The balance of powers at work as intended.

3:20PM PDT on Aug 24, 2010

"The heart of the judge's concern was why shareholders should ultimately bear the price of the SEC sanction rather than all of the senior executives who were involved in the misstatements-- concerns that had been expressed earlier when the settlement between the SEC and Bank of America was rejected as reflecting a "cynical" relationship whereby the agency could argue it was penalizing the industry but levy sanctions that were, by all intents and purposes, meaningless in comparison to the conduct at issue."

It is my hope that the judges force these criminal bankers to pay every last cent back and put them all in jail for 'HARD TIME!' the fast and loose financial goings on has crippled the entire world, whipped out families savings and left millions of people without homes nor money to purchase necessities. A public hanging them all in Time Square would be appropriate.

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