“Round One,” The Banks vs. The Rest of Us

“Round One,” The Banks vs. The Rest of Us

Within a month Federal District Judge Jed Rakoff has launched what may be the beginning of the end for rapacious behavior on the part of our banking sector. Earlier this month he refused once again to rubberstamp an under-the-table deal the Security and Exchange Commission (SEC) made with a “Too Big To Fail” Bank, this time Citi. Unlike earlier deals that came before him, he is apparently not going to agree to any settlement without all the gory details being revealed.

As you may recall from our 11.15.11 OP-ED, Citi has been charged with fraud. With selling their customers a bundle of crappy investment vehicles while at the same time betting against them. Of course the crappy stuff turned out to be crappy and when they failed, Citi’s customers took a hit somewhere north of $700 million bucks and Citi collected on their bet. Judge Rakoff questioned the settlement -$95 million- and the fact that only one individual was charged with criminal behavior. In an earlier case (Bank of America) Rakoff signed off when the SEC upped the penalty. Two other Federal Judges signed off on similar deals with Goldman Sachs and J.P. Morgan Securities, as many judges have over the years.

After mulling over the Citi deal for a couple weeks, Rakoff took a very different tack. This time he rejected the premise that Citi could walk away with a fine and a promise to never do it again. He wants all the gory details out on the table. A path that drew a snarky headline, “Rakoff Cements Status as Populist Firebrand”, on the American Lawyer Magazine website’s report on his ruling. Basically saying that his failure to play “go along to get along” would end any chance of promotion for the judge.  But isn’t that what ethics is all about, doing the right thing without regard for self interest?

An end may be at hand to the age of repeated SEC “Peanuts and a promise” deals for those who pull off massive ripoffs. As Steve Denning noted in a recent Forbes article, What Shall We Do With The Big, Bad Banks, “Over the last 15 years, some 19 large major financial institutions have been found by the SEC to have broken anti-fraud security laws at least 51 times—laws  that they agreed ‘never again to breach’. The group of offenders included Citigroup, Bank of America, JPMorgan Chase, UBS, Goldman Sachs, Wachovia, and AIG. In this period, the Securities and Exchange Commission has never once brought a contempt of court citation against any of the banks for repeated offences.”

The leaders of these behemoths, the Lloyd Blankfeins and Jamie Dimons and their minions who hide behind these “Don’t Ask, Don’t Tell” deals with the SEC, may be called to task if it turns out that they were aware of the double dealings underlying the SEC charges. An outcome sure to be cheered by the State Attorney Generals across the country that have been pursuing the culprits who triggered the financial collapse we are enduring; looking for someone to jail.

Wouldn’t that be nice? Three cheers for Judge Jed Rakoff.

Take Off The Kid Gloves

Take Off The Kid Gloves

The Securities & Exchange Commission (SEC) ended its fiscal year in September having filed a record number of cases (735), up almost 10% from their pace (677) last year. They collected nearly $3 billion in penalties both years. Meanwhile the annual Johnson Associates’ “Executive Compensation Study” shows an alarming drop in pay for the folks on Wall Street, as much as 20% - 30%. Alarming perhaps to the Wall Street types, but to those who are trying to make ends meet the Wall Street pay scale, that begins at a hundred grand and can escalate into seven or eight figures, still looks really good. 

Reuters reports that over the last two years the SEC has removed a management layer and restructured their enforcement division. And, they have created a new whistleblower bounty program alongside other incentives to encourage witnesses to cooperate. Given the two record years they have registered, it must be working.

Or is it? It appears that the SEC is still treading softly with the big banks and the individuals behind the misdeeds (AKA CEOs etc.).  A Federal District Judge, Jed Rakoff, doesn’t seem convinced that a proposed settlement with Citibank is tough enough on the bank. Citi is charged with fraud; selling customers crappy financial instruments at the same time the bank was betting they would fail. The very same double dealing that triggered the financial collapse we are enduring.

In a hearing last week Judge Rakoff questioned the SEC on the settlement: $95 million when the investors Citi ripped off lost $700 million. The judge has taken a similar position with several lowball settlements the SEC proposed in the past. Rakoff also questioned why only one individual in this case has been charged with wrongdoing.

We –along with many others, including State Attorney Generals across the country– have been wondering about the SEC slap-on-the-wrist penalty proclivity. A concern the Attorney Generals also direct toward the Justice Department; why has it not zealously prosecuted bankers who triggered the recession? We know who they are and what they did. Instead, after bailing them out we are forced to watch as they go back to the same risky stuff all over again, sure that we will bail them out again when it collapses. All the while taking home eight-figure bucks.

The banks’ reaction to the relatively mild restraints of the Dodd/Frank Act is to pile new fees on their customers. They have grown so accustomed to inflated profits from what are nothing more than risky gambling schemes that when a little of that revenue stream is cut off, they sock it to their customers instead of living lean. In the meantime we have to listen to Jamie Dimon, JPMorgan Chase “Whiner in Chief,” and Goldman Sachs CEO, Lloyd Blankfein (AKA The Artful Dodger) complain. They are so misunderstood and unappreciated after all they do for us, poor babies.

Alan Johnson, managing director of Johnson Associates, the firm that carried out the Wall Street wage study, put the ethical issue very succinctly, “Wall Street executives,” he said, “haven’t gotten the memo at all.”