The Daily Caller

The Daily Caller
FILE- In this Dec. 17, 2008 file photo, the Securities and Exchange Commission (SEC) headquarters in Washington is shown. (AP Photo/File) FILE- In this Dec. 17, 2008 file photo, the Securities and Exchange Commission (SEC) headquarters in Washington is shown. (AP Photo/File)  

SEC will go after the judge that told it to do its job

Judge Rakoff got to have his insurrection when he rejected the SECs $285 million settlement with Citigroup last month.

Now it’s the SECs turn. According to the Wall Street Journal, the agency is planning an insurrection too — against Judge Rakoff. The agency will expend its resources creating a five person panel to appeal the Judge’s decision

You’ll recall that instead of allowing the agency to take Citi’s money and be done with its mortgage-backed security suit against the bank, Judge Rakoff asked both parties to go back to the drawing board.

In doing so, Judge Rakoff bucked a practice that’s been in play since the 1970s. The SEC has allowed banks to pay small sums (‘pocket change,” in Rakoff’s words) and neither confirm nor deny their guilt in civil suits against the agency. Rakoff thinks that practice is unjust.

So given the Judge’s order, you would think the SEC might prepare itself to go to trial with Citi so the bank could maintain its innocence (a scary prospect for both parties). Or that both parties, at the very least, would get their calculators out to tabulate a sum that might make the Judge happy.

Not so. The SEC would prefer to create a 5 person commission to appeal the Judge’s ruling and nip this problem in the bud. If Rakoff can do it once, he can do it again no? The SECs director has argued that this would make it difficult to police Wall Street. Moreover, what if other Judge’s decide to follow in Rakoff’s footsteps?

Appealing could save the SEC the trouble of lengthy, difficult, expensive trials against highly paid bank lawyers in the future. And even right now, Rakoff’s judgment is effecting settlement talks the SEC is having with banks for cases it’s already started.

(Via the WSJ):

“Everything’s come to a halt because the SEC doesn’t know what to ask for anymore in the settlements,” one of the people said.

Another person familiar with the matter added: “The pencils have been put down.”

So here’s what this new SEC commission could do: If the commissioners approve the appeal (which they may in the coming days) it would go to the Second Circuit Court of Appeals. If they win, great, they get their settlement and Rakoff can continue on doing his thing too.

But if the Second Circuit Court of Appeals upholds Rakoffs verdict, the SEC could be in trouble because, even though Courts and Judges around the country know that Rakoff’s verdict was weird, upholding it could set a precedent. That precedent would say: ‘now we make banks admit their guilt. So go forth, judges, and have trials.’

The SEC has another option. It could yank this case all-together and file the case as an administrative proceeding, which would get it out of the Courtroom.

Whatever they do, they need to do it before July 16th. For now, that’s when the SEC and Citigroup will have to go to trial.

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