SEC To Second Circuit: 'Please Don't Make Us Do Our Jobs!'

from the hens-guarding-the-foxhouse dept

Cross-posted from



You don't want to live in a town where the police and the mob work together.

In a completely unrelated note, the Second Circuit recently heard arguments from the SEC — the federal agency statutorily charged to enforce the nation’s securities laws — and Citigroup — a company targeted for securities laws violations that it refuses to admit or deny committing — on the SAME SIDE.

This should be a red flag.

They wanted the Second Circuit to spank Judge Jed Rakoff for having the audacity to ask the SEC to kindly do its job. The nerve of some people.

Well, securities law may not be as sexy as drone strikes, but I watched the SEC try to pull off just as naked an executive power grab.

So it was my first return in my new capacity as a journalist to the federal courthouse that I’ve visited time and time before as a lawyer. It’s a different experience walking in without a suit and without drilling yourself to make sure you remembered everything you needed for the hearing. Almost relaxing in a way.

The courtroom was an absolute zoo, built far too small for a hearing that had the attention of the media and every financial institution worried about the future of their relationship with their regulator. Add in the army of clerks dropping in to watch, and the courthouse had to set up an overflow room with folding chairs and a TV simulcasting the event (and even that room was eventually standing room only).

When I first got there, the TV only showed the floating face and torso of Judge Rosemary Pooler, joining the proceedings from the Northern District of New York, in a courtroom that looked eerily like the backdrop to a hostage video with sparse, utilitarian walls, a light switch and a flag. I felt bad watching her sit like an interviewee in a green room with a hundred lawyers and journos watching her every move. It felt like Legal Big Brother.

The background of the case is simple enough. In 2011, the SEC and Citigroup brought a consent decree to Judge Rakoff. The judge felt obliged to ask for some factual backup before rubberstamping a decree that basically let Citigroup off the hook for activity that, at the time, public opinion thought pretty severe. When the SEC and Citigroup failed to meet this basic standard to Judge Rakoff’s liking, he declined to approve their consent decree. Basically, if the SEC really has gathered enough evidence to reach a reasonable settlement with someone, they should be able to provide the judge with some evidence to back up its reasonableness. In math class you have to show your work.

This isn’t the first time Judge Rakoff has issued a controversial ruling challenging accepted government policies. Remember, this is the guy who made the death penalty unconstitutional for a hot minute. Now he’s questioning the SEC’s chummy totally professional and arms-length relationship with Wall Street.

Interestingly, because the subsequent acquittal in the Stoker case brought to light facts that the SEC and Citigroup originally failed to provide Judge Rakoff, he no longer believes that he must deny the consent decree and would almost assuredly approve the agreement on remand. No harm, no foul, right?

But Michael Conley for the SEC and Brad Karp for Citigroup weren’t thrilled with this possible result, asking the Second Circuit instead to reverse the lower court decision.

Why? Well, the money exchange came when Judge Raymond Lohier (the final judge on the panel was Judge Susan Carney) asked about deference and why an Article III judge would question the judgment of an executive agency that presumably reached its decision based on a sound review of the evidence.

The lawyer for Judge Rakoff, Rusty Wing [disclosure: I used to work with Rusty at LSW, though I had no involvement whatsoever with this matter], pointed out that the SEC is entitled to deference — but that doesn’t mean they aren’t wrong, eliciting laughter from the audience and a snarky “No! Really?” from Judge Lohier himself.

It sounded a lot like the SEC was going to the mat on this one because they didn’t want “deference” as much as they wanted “tyranny” — a ruling affirming that any decision they reach is subject to zero judicial review based on their status as part of the executive branch because we should all just trust the executive branch without any transparency. Sounds a lot like drone strikes to me.

Depending on the outcome of the hearing, when Mary Jo White gets there and starts kicking tail, as Elie suggests, she will have a couple drones at her disposal.

Judge Rakoff Rejects SEC’s “Contrivances” In Citigroup Settlement [Forbes]



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Filed Under: oversight, sec

Companies: citibank, citigroup