Let’s make a deal. We all know you did some reprehensible things to help cause the financial meltdown of 2008.
In fact, you may have broken the law. But we aren’t going to investigate who did what or how things got out of control.
Nobody is going to jail.
Hey, we all want to move forward, right? You don’t have to admit you did anything wrong. Just accept the monetary penalties we impose on you — penalties you can easily afford — and we’ll let bygones be bygones.
This seems to be the approach most of the country’s state attorneys general are taking in the settlement they are considering with the major banks relating to wrongful foreclosures and their securitizing of residential securities. Their argument is that, in order to get the housing market moving, we should let the banks off with a wrist slap and move on.
A small group of AGs, led by Delaware’s Beau Biden and New York’s Eric Schneiderman, are resisting this approach. The suit Biden filed last week against the Mortgage Electronic Registration System (MERS) for deceptive trade practices shows that we need a lot more investigation before any settlement.
We’ve seen a lot of terrible deals recently that let banks off the hook. A recent settlement request proposed by the SEC would fine Citigroup $285 million for fraud in the sale to investors of $1 billion of collateralized debt obligations (CDOs) that were stuffed with high-risk mortgages.
It is just the latest in a long string of cases, based on misstatements by the banks to investors and/or shareholders, that were settled by the SEC with Goldman Sachs, Bank of America, J P Morgan Chase and other major banks.
The cases were all about how the banks made a lot of money by not telling the truth. The banks all agreed to pay millions in fines. The fines, of course, end up being paid by the shareholders, not the executives. No one goes to jail. No executive compensation seems to be affected. And even though the SEC accused them of serious securities fraud, the banks did not have to admit any wrongdoing.
We are now seeing the logical result of these misguided deals.
Since they got a free pass — nobody admitted doing anything wrong — the CEOs of the big banks are free to say there is nothing wrong with the way the Wall Street system works. In the first half of this year, they spent $100 million in lobbying in Washington to oppose any meaningful changes in the rules of the game.
Thank goodness there is someone in the system, aside from a handful of state AGs, who sees the injustice created by the kind of deals being made with the banks.
Federal District Court Judge Jed S. Rakoff rejected an SEC deal to fine Bank of America $33 million for financial wrongdoing during the Merrill Lynch merger. He made the agency renegotiate the settlement and while he approved the final fine of $150 million, he declared it “inadequate.”
Now he has taken on the proposed deal with Citigroup. Before he approves it, he wants questions answered, among them:
» Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud, but the defendant neither admits nor denies wrongdoing?
» Why is the penalty in this case to be paid in large part by Citigroup and its shareholders rather than by the “culpable individual offenders acting for the corporation?” If the SEC was for the most part unable to identify such alleged offenders, why was this?
» What specific “control weaknesses” led to the acts alleged in the complaint? How will the proposed “remedial undertakings” ensure that those acts do not occur again?
» How can a securities fraud of this nature and magnitude be the result simply of negligence?
Judge Rakoff is asking exactly the right, common-sense questions. We should all be demanding they be answered before there is another deal.
We send people to jail for stealing $100. What about people who steal $100 million?
Originally published 6 Nov 2011 on delawareonline.com