Federal Judge Slams SEC-Citigroup Deal: An Overriding Public Interest in Knowing the Truth

“In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., 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.”

U.S. District Court Judge Jed Rakoff of the Southern District of New York has refused to approve a settlement between the U.S. Securities and Exchange Commission and Citigroup. The SEC had charged that Citigroup intentionally dumped onto unwitting investors more than $700 million of losses from mortgage-backed securities while pocketing $160 million in profits for itself.

After bringing the charges, the SEC and Citigroup avoided a trial and negotiated a “settlement” that left the public in the dark about what really happened. Indeed, the settlement left Citigroup free to deny the allegations entirely. Judge Lakoff slammed the SEC for a deal that “does not involve any admissions and that results in only very modest penalties.” Such a deal, according to the judge, “is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies.”

Under federal law, the SEC-Citigroup settlement requires approval of the Court, in this case, Judge Lakoff. In an extraordinary order, Judge Lakoff refused to go along, rejected the settlement and set the case for trial. He said the SEC-Citigroup deal is not in the public interest for a number of reasons, and particularly because it hides the truth about the role of Citigroup, and other Wall Street corporations, in the economic melt-down that has harmed so many Americans. Judge Lakoff insisted on transparency:

“Finally, 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. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., 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.”

The complete order can be read here:  Judge Rakoff’s Order-Citigroup.

About Jeff Clements

Jeff Clements is co-founder and chair of the board of Free Speech for People, a national non-partisan campaign to overturn Citizens United v. FEC, challenge excessive corporate power, and strengthen American democracy and republican self-government. He co-founded Free Speech For People in 2010, after representing several public interest organizations with a Supreme Court amicus brief in the Citizens United case. Jeff has served as Assistant Attorney General and Chief of the Public Protection Bureau in the Massachusetts Attorney General’s Office. As Bureau Chief, he led more than 100 staff in the enforcement of environmental, healthcare, financial services, civil rights, antitrust and consumer protection laws. In private practice, Jeff has been a partner at Mintz Levin in Boston, and in his own firm. Jeff also has served in leadership capacities on numerous boards, including that of the Portland Water District, a public agency responsible for protecting and delivering safe drinking water and ensuring proper treatment of wastewater for 160,000 people; Friends of Casco Bay, an environmental organization he co-founded with others to protect and enhance stewardship of Maine’s Casco Bay; and The Waldorf School in Lexington, Massachusetts. In 2012, Jeff co-founded Whaleback Partners LLC, which provides cost-effective capital to farmers and businesses engaged in local, sustainable agriculture. Jeff graduated with distinction in History and Government from Colby College in 1984, and magna cum laude from the Cornell Law School in 1988. He lives in Concord, Massachusetts with his wife and three children. Jeff Clements Twitter: @ClementsJeff Email: jclements@freespeechforpeople.org
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