Replies to post #128197 on Tornado Alley (PROG)

[StephanieVanbryce]

Federal Judge Pimp-Slaps the SEC Over Citigroup Settlement


Chris Goodney/Bloomberg via Getty Images/Andrew
Harrer/Bloomberg via Getty Images

November 29, 10:10 AM ET

Greetings, folks. Hope everyone had a good Thanksgiving…

Just a quick update on a big piece of news that came through yesterday. In one of the more severe judicial ass-whippings you’ll ever see, federal Judge Jed Rakoff rejected a slap-on-the-wrist fraud settlement the SEC had cooked up for Citigroup. [ http://www.nytimes.com/2011/11/29/opinion/the-secs-enabling.html?_r=1&ref=opinion ]

I wrote about this story a few weeks back when Rakoff sent signals that he was unhappy with the SEC’s dirty deal with Citi, but yesterday he took this story several steps further. [ http://www.rollingstone.com/politics/blogs/taibblog/finally-a-judge-stands-up-to-wall-street-20111110 ]

Rakoff’s 15-page final ruling read like a political document, serving not just as a rejection of this one deal but as a broad and unequivocal indictment of the regulatory system as a whole. He particularly targeted the SEC’s longstanding practice of greenlighting relatively minor fines and financial settlements alongside de facto waivers of civil liability for the guilty – banks commit fraud and pay small fines, but in the end the SEC allows them to walk away without admitting to criminal wrongdoing.

This practice is a legal absurdity for several reasons. By accepting hundred-million-dollar fines without a full public venting of the facts, the SEC is leveling seemingly significant punishments without telling the public what the defendant is being punished for. This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors.

This system allows for ugly consequences in both directions. Imagine if normal criminal defendants were treated this way. Say a prosecutor and street criminal combe into a judge’s chamber and explain they’ve cooked up a deal, that the criminal doesn’t have to admit to anything or plead to any crime, but has to spend 18 months in house arrest nonetheless.

What sane judge would sign off on a deal like that without knowing exactly what the facts are? Did the criminal shoot up a nightclub and paralyze someone, or did he just sell a dimebag on the street? Is 18 months a tough sentence or a slap on the wrist? And how is it legally possible for someone to deserve an 18-month sentence without being guilty of anything?

Such deals are logical and legal absurdities, but judges have been signing off on settlements like this with Wall Street defendants for years.

Judge Rakoff blew a big hole in that practice yesterday. His ruling says secret justice is not justice, and that the government cannot hand out punishments without telling the public what the punishments are for. He wrote:

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.

Notice the reference to how things are “in much of the world,” a subtle hint that the idea behind this ruling is to prevent a slide into third-world-style justice. There are many such loaded passages in Rakoff’s ruling. Another one comes up around the issue of the “public interest.”

This issue of whether or not the SEC must consider the public interest in granting these cozy settlements gets to the heart of the Occupy Movement's central complaint, that there are two different sets of rules for two different Americas. The SEC in this case incredibly argued – out loud, on paper – that it could make regulatory decisions without considering the public interest. In particular, it argued that it didn’t need to consider the public interest when granting “injunctive relief,” i.e. an injunction barring future behaviors, as opposed to the stiffer and more immediate punishment of fines or criminal charges.

The SEC argued to Judge Rakoff that "the public interest ... is not part of [the] applicable standard of judicial review."

Translating: “When we decide to let thieving megabank off with just a promise to never do it again, we don’t have to consider whether or not this is in the public interest.”

If you stand back and really think about what this argument means, it’ll make your head spin. What the SEC is saying here is that according to the incestuous values of the small community of high-priced revolving-door lawyers who both head the SEC enforcement office and run the defense teams of banks like Citi, a $95 million fine with no admission of wrongdoing for a $700 million fraud is, in fact, “fair” and “reasonable.”

The settlement only becomes problematic, the SEC implies, if you ask them to square their judgment with “the public interest.”

The SEC, in other words, is admitting that they have a standard for “reasonableness” and “fairness” that somehow does not coincide with the public interest. This surreal formulation translates as, “We’re doing the right thing – we’re just not doing it for the public.”

Rakoff’s response to this lunacy:

A large part of what the S.E.C. requests, in this and most other such consent judgments, is injunctive relief... The Supreme Court has repeatedly made clear, however, that a court cannot grant the extraordinary remedy of injunctive relief without considering the public interest.

The Rakoff ruling shines a light on the way these crappy settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the SEC’s only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

That line, “a cost of doing business imposed by having to maintain a working relationship with a regulatory agency,” is one of the more brutally damning things you’ll ever see a judge write. Rakoff is saying that these fines are payoffs to keep the SEC off the banks’ backs. They’re like the pad that numbers-runners or drug dealers pay to urban precinct-houses every month to keep cops from making real arrests. That's what he means when he refers to "maintaning a working relationship." It's heavy stuff.

On the other hand, both the SEC and Citigroup insist that this secretive payoff system is defensible and must continue. They clearly believe, sincerely, that none of this stuff is really the public’s business.

This is an extraordinarily condescending attitude and shows exactly how little they think of the public at large. One wonders if decisions like Rakoff’s will at least help to wake the government up.

Plus: Here’s a clip of me talking about the ruling last night on Countdown with Keith Olbermann.


http://www.rollingstone.com/politics/blogs/taibblog/federal-judge-pimp-slaps-the-sec-over-citigroup-settlement-20111129

what will it take to end this relationship between our plutocrats and our government .. PEACEFULLY . .I can only think of ending the money going into campaign pockets ... and I don't any faith that will happen ......I just don't know ..to me this is a WAR! and WE, if not have all ready lost ... or SOON! .. .

[fuagf]

Ex-Goldman trader Tourre goes on trial for fraud

Date July 16, 2013


Fabrice "Fabulous Fab" Tourre. Photo: AFP

The trial of former Goldman Sachs trader Fabrice Tourre, the Wall Street trader who became a face of the excesses of the financial crisis, opened on Monday in a US court.

Tourre, a 34-year old Frenchman known as "Fabulous Fab," is charged with fraud in connection with mortgage bonds that lost investors some $US1 billion when the market for "subprime" loans burst in 2008.

The Securities and Exchange Commission accuses him of selling the bonds - so-called synthetic collateralised debt obligations - to investors even though he knew they were likely to fail.

His former employer, Goldman, has already paid a record $US550 million to settle similar charges.

His trial kicked off on Monday morning under US District Judge Katherine Forrest and is expected to last two to three weeks.

Forrest told attorneys to keep the discussion as straightforward as possible, meaning they should avoid complicated financial terms like "swaps" or "synthetic derivatives" and should explain their meaning if they are employed.

Forrest also promised to not call Tourre "Fab the Fabulous," the nickname Tourre used for himself in emails about his work and the CDOs he was selling, and has since become widely used.

A graduate of France's Ecole Centrale and of America's Stanford University, Tourre kept a serious expression in court, clad in a black suit with a white shirt and orange tie.

His case is one of numerous highlighting the excesses of Wall Street that led to the crisis, which saw banks and other financial institutions founder and investors rack up huge losses on CDOs that plummeted in value once the US housing bubble imploded in 2007-2008.

At Goldman Sachs in early 2007, Tourre designed the complex "Abacus" CDO investment, which packaged higher-risk mortgage-backed securities.

He is accused of failing to warn investors that a hedge fund headed by John Paulson was involved in creating Abacus, and that Paulson was taking a huge bet against it even as it was being sold to investors expecting positive returns.

[ insert: Hedge Fund Billionaire John Paulson Lost $736M In Second Quarter Gold Bloodbath
http://www.forbes.com/sites/afontevecchia/2013/08/15/hedge-fund-billionaire-john-paulson-lost-736m-in-second-quarter-gold-bloodbath/

big deal, it's a drop in a bucket for the shonk billionaire ]

The buyers of the securities included Dutch giant ABN Amro and its sister bank IKB of Germany.

When the affair became public in April 2010, US media lambasted the apparent arrogance of Tourre, who refused to apologise during a hearing in Congress.

The case focuses in part on the $US2 million Tourre earned in 2007 and a series of private emails where Tourre compared the securities to "monstrosities" and little "Frankensteins" and made fun of the "poor, little subprime borrowers."

"Fabrice Tourre has done nothing wrong. He is confident that when all the evidence is considered, the jury will soundly reject the SEC's charges," his lawyers said in an email sent to AFP.

If found guilty, though, he faces fines and demands to reimburse the losses.

AFP

http://www.smh.com.au/business/world-business/exgoldman-trader-tourre-goes-on-trial-for-fraud-20130716-2q0rq.html

"In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC."

.. that one of yours is a heavy read, insider corruption is mind-boggling ..
hopefully Tourre's orange tie will be swapped for and orange jumpsuit .. oh! .. update ..

The trial of Fabrice Tourre
Collective guilt

The verdict against a former trader exposes Goldman Sachs

Aug 10th 2013 | NEW YORK |From the print edition

WERE Fabrice Tourre merely an ordinary defendant in a case brought by the Securities and Exchange Commission (SEC), it would be time to forget his name. But on August 1st a jury in a Manhattan federal court found him liable on six counts of securities fraud—including one of “aiding and abetting” his former employer, Goldman Sachs. This means that a jury has found that the world’s most successful investment bank has done something wrong—and that the case may be far from over.

The trial’s judge, Katherine Forrest, must now decide what penalties to impose on Mr Tourre for his role in misleading investors about a complex security, called Abacus, which caused three financial firms to lose $1 billion. His attorneys will presumably argue that he has already suffered substantial loss, including his job (though Goldman has paid his legal fees) and public humiliation. The SEC could seek a ban from the industry and fines.

[ oh .. no chance of jail time?? ]

Given Goldman’s deep pockets, Mr Tourre had reason to take his chance in court. Conversely, there is little doubt that Goldman, which had already paid $550m to settle related claims with the SEC without admitting or denying guilt, would have preferred him to settle.

This time around, the firm may hope that Mr Tourre continues his defence. True, an end to proceedings would stop a public-relations nightmare: the trial painted a picture of a firm that was creative and responsive—but not fully forthcoming and certainly not to be trusted.

Yet allowing the aiding-and-abetting claim to stand may have legal ramifications. Goldman already faces a class-action suit by some of its shareholders, filed in the Southern District of New York, seeking billions in damages related to Abacus and three other transactions. The suit alleges that Goldman failed to disclose that it was acting against its own clients’ interests when creating these financial products.

“The Tourre verdict, in particular the finding that Tourre aided and abetted Goldman, sends a message to hold those responsible for creating these financial products that were destined to fail,” said Spencer Burkholz of Robbins Geller Rudman and Dowd, the counsel for the plaintiffs. Discovery is in process, a trial could come next summer. Much to his regret, Mr Tourre’s fame will continue.

http://www.economist.com/news/finance-and-economics/21583286-verdict-against-former-trader-exposes-goldman-sachs-collective-guilt

F6 .. i'm confused again .. is it that the class action against GS "could come next summer" .. that must be it .. Tourre has been found liable, it said the verdict is down on him .. then what's this about? .. "This time around, the firm may hope that Mr Tourre continues his defence." .. sheesh .. thought he had finished .. does he now defend against the penalty he could face? .. is that what it means? .. hate missing something that must be obvious to you guys .. anyway .. poached please .. lol .. yelp ..