STOCK MARKET WATCH - Wednesday, 11 January 2012

[Demeter]

9. Finally, a Judge Stands up to Wall Street MATT TAIBBI NOVEMBER

http://www.rollingstone.com/politics/blogs/taibblog/finally-a-judge-stands-up-to-wall-street-20111110#ixzz1dNpu8bbF

Federal judge Jed Rakoff, a former prosecutor with the U.S. Attorney’s office here in New York, is fast becoming a sort of legal hero of our time. He showed that again... when he shat all over the SEC’s latest dirty settlement with serial fraud offender Citigroup, refusing to let the captured regulatory agency sweep yet another case of high-level criminal malfeasance under the rug.

The SEC had brought an action against Citigroup for misleading investors about the way a certain package of mortgage-backed assets had been chosen. The case is very similar to the notorious Abacus case involving Goldman Sachs, in which Goldman allowed short-selling billionaire John Paulson (who was betting against the package) to pick the assets, then told a pair of European banks that the “designed to fail” package they were buying had been put together independently. This case was similar, but worse. Here, Citi similarly told investors a package of mortgages had been chosen independently, when in fact Citi itself had chosen the stuff and was betting against the whole pile. This whole transaction actually combined a number of Goldman-style misdeeds, since the bank both lied to investors and also bet against its own product and its own customers. In the deal, Citi made a $160 million profit, while its customers lost $700 million.

Goldman, in the Abacus case, got fined $550 million. In this worse case, the SEC was trying to settle with Citi for just $285 million. Judge Rakoff balked at the settlement and particularly balked at the SEC’s decision to allow Citi off without any admission of wrongdoing. He also mocked the SEC’s decision to describe the crime as “negligence” instead of intentional fraud, taking the entirely rational position that there’s no way a bank making $160 million ripping off its customers can conceivably be described as an accident.