By Jason Enzler
The Second Circuit Court of Appeals has overturned a decision that many had hailed as one of the first to really hold Wall Street accountable for its behavior in the years leading up to the Great Recession. The opinion, issued yesterday, found that New York District Court Judge Jed Rakoff abused his discretion in rejecting a deal brokered between the Securities and Exchange Commission and Citigroup, Inc. regarding allegations of mortgage-bond fraud….
Judge Rakoff’s decision, issued in 2011, rejected the proposed $285 million civil settlement as “neither fair, nor reasonable, nor adequate, nor in the public interest,” and criticized the pay-out as nothing more than what Wall Street views as the “cost of doing business.” Judge Rakoff also found unsettling the fact that Citigroup would settle allegations of fraud under the proposed settlement without admitting or refuting their truth, denying any notion of true accountability from the public.
It was this last point, in particular, that the Court of Appeals took issue with. In overturning Judge Rakoff’s decision, the Second Circuit held that he abused his discretion in requiring “that the S.E.C. establish the ‘truth’ of the allegations against [Citigroup] as a condition for approving” the settlement. But the Second Circuit stopped short of ordering that the deal be approved, instead remanding that decision to Judge Rakoff. That means that he will still have the ability to question other parts of the deal.
Undoubtedly, Wall Street (and federal regulators) are pleased with this new development. But as The New York Times reports, Judge Rakoff’s decision will still have a lasting effect despite the fact that it was overturned. Since his decision issued, the S.E.C. has taken a new tack and has begun considering whether settlements should require admissions of wrongdoing. And Judge Rakoff will no doubt continue to be a loud and influential voice in decrying any kind of “too big to jail” approach to combating big bank fraud. See One Bold Judge Speaks His Mind.
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