By Justin Vernold
The Daily Star
---- — With the Citizens United v. Federal Election Commission ruling in 2010 ushering in a new era of money in politics, it’s becoming more common to see elected officials turn a blind eye to malfeasance by well-connected crooks. But some recent court cases, where a few fastidious judges have attempted to knock unrepentant Wall Street snakes down a few pegs, offer hope that maybe our judiciary is still interested in truth and justice.
In many Wall Street settlements, the truth is buried in deals by white-collar criminals who avoid charges and admit no wrongdoing in exchange for a settlement with the federal Securities and Exchange Commission. It’s basically a “Get Out Of Learning A Lesson Free” card. The difference is that in Monopoly, the card only works once, then you have to throw it away; on Wall Street, Citigroup, for example, has reached fraud settlements with the SEC five times since April 2000, according to The New York Times.
That’s why it was refreshing two weeks ago to see U.S. District Judge Victor Marrero frown on the $602 million settlement proposed by the SEC and SAC Capital Advisors LP. The firm is accused of making $276 million off illegal stock tips from ex-employee Mathew Martoma. Martoma was charged with securities fraud last November by U.S. Attorney Preet Bharara, who dubbed it the largest insider-trading case in history.
Judge Marrero, whose approval is needed to seal the deal, was miffed by SAC’s refusal to admit wrongdoing, given that Martoma might still be convicted of criminal charges.
“How would it look if, in the settlement before (Martoma’s case), the parties were allowed to say ‘We did nothing wrong’?” Marrero asked, adding that “there is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong.”
Forgive Marrero if he appears unsympathetic toward a firm willing to pay a $600 million settlement — he knows it’s chump change to SAC Capital CEO Steve Cohen. The New York Post reported in March that a few days after the settlement was announced, Cohen spent $155 million to purchase Picasso’s “Le Rêve” from a friend.
U.S. District Judge Richard Leon took a harsher tone in December, when he refused to approve a deal between the SEC and IBM Corp., accused of bribing officials from South Korea and China to win $54 million in government contracts. In March 2011, the company agreed to pay $10 million to settle the charges while admitting no wrongdoing. But Leon refused to sign off unless the company turned over more information about its accounting practices.
“I’m not just going to roll over like the SEC has. You’re going to need data to satisfy me,” Leon said. He demanded to know “why, for one of the largest companies in the world, this is too burdensome,” even suggesting that IBM bring its accountants in to explain, under oath, why such records were unavailable — on the Friday before Christmas, no less.
“I guess you want that $10 million judgment on your list of achievements this year,” Leon growled at SEC attorney Kyle DeYoung. “Well, it’s not going to happen.”
U.S. District Judge Jed S. Rakoff started pushing back against such slap-on-the-wrist settlements in 2009 by rejecting a proposed $33 million settlement with Bank of America over its takeover of Merrill Lynch. Rakoff said it was a “sweetheart deal” where “the SEC gets to claim that it is exposing wrongdoing ... and the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.” The case was later settled for $150 million.
In November 2011, Rakoff rejected a $285 million admit-no-wrongdoing settlement with Citigroup, accused of misleading clients about mortgage securities. Rakoff noted the deal includes only a $95 million penalty, while the SEC estimated Citigroup ripped investors off to the tune of $700 million.
“So the net effect of this is that you’re only returning a small fraction of what the investors lost, yes?” Rakoff asked the SEC lawyer. “I won’t be cute and ask what percentage of Citigroup’s net worth is $95 million, because I do not have a microscope with me.”
At least someone’s interested in the truth. The SEC, staffed by White House political appointees, clearly isn’t. And don’t expect it to get better under new boss Mary Jo White, who was confirmed Monday by the Senate in a move reminiscent of a fox being appointed hen-house guardian. As a defense attorney, White represented JPMorgan Chase and Bank of America executives in the aftermath of the 2008 financial meltdown.
Given her coziness with Wall Street, it’s no surprise White breezed through her confirmation hearing. As George Carlin said, “‘Bipartisan’ means some larger-than-usual deception is being carried out.”
JUSTIN VERNOLD is a copy editor at The Daily Star. Contact him at firstname.lastname@example.org.