The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

As a former SEC attorney myself, I know how difficult it can be to work with limited staff, time, and money to reign in the fraud and deceit that seems to run rampant in Gotham…  Excuse me, I meant Wall Street.  But resources aside, some cases demand a full court press.

The bloggers are a blogging and twitter is atwitter with talk of Judge Rakoff’s refusal to approve a proposed settlement between the SEC and Citigroup for “alleged” fraud.  Specifically, Citigroup is accused of selling junk securities to investors only so it could turn around and short, or bet against, its own customers when the securities tanked.  According to the New York Times, investors lost $700 million while Citigroup made $160 million from the deal.  This is not just aggressive business-as-usual but the kind of fraud you’d expect from some boiler room shop manned by ex-cons.  It’s surely not something you’d expect from one of our nation’s largest banks.  (Who, by the way, survived only after receiving $30 billion from you and me – taxpayers, that is.)

Rakoff’s decision is hailed by some as a triumph of reason over “business as usual,” but derided by others as capricious overreaching by a judge who should defer to an agency’s discretion to settle such matters.  I’m firmly with Judge Rakoff on these facts.  It was the right case to make a statement.

Business as usual has to change.  Companies like Citigroup should not be allowed to simply sweep improper conduct under the rug with no admission of guilt and a penalty that Judge Rakoff appropriately described as pocket change.  As I pointed out in this interview, somebody must be held responsible.  Somewhere on Wall Street sit a couple of bankers who decided it would be a smart idea to bet against their customers and worse, to sabotage their customers’ investments.  Those people must be held accountable and the company they work for should admit wrongdoing.  Who are they?  In this case, taxpayers are entitled to know.

On the other hand, agencies like the SEC do not have unlimited resources.  As a former SEC attorney myself, I know how difficult it can be to work with limited staff, time, and money to reign in the fraud and deceit that seems to run rampant in Gotham…  Excuse me, I meant Wall Street.  But resources aside, some cases demand a full court press.  This is one that shocks the conscience.

Judge Rakoff was correct that Citigroup is a recidivist and repeat offender and I look forward to watching the effects of this potential “new era” trickle out to the rest of Wall Street.  There is a new sheriff in town and his name is Jed Rakoff.  Will he enlist others?

Assisted by Zachary A. Kady

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Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. “It is not fair, first and foremost because it does not comport with the most elementary notions of justice and morality…”

Today we applaud the Honorable Jed Rakoff – our former “Person of the Week” – once again, for standing up against both Wall Street greed and immorality and one of the nation’s most important regulators. Not a bad day’s work.

On Monday, Rakoff stridently refused to approve a $33 million settlement deal between the Securities and Exchange Commission (SEC) and the Bank of America.

Rakoff’s decision protects the rights of Main Street and fulfills the judiciary’s historic role as the conscience of America. As Alexander Hamilton writes in Federalist Paper No. 78,

“The judiciary…has no influence over either the sword or the purse; no direction either of the strength or of the wealth of the society; and can take no active resolution whatever. It may truly be said to have neither FORCE nor WILL, but merely judgment.” Jed Rakoff’s actions demonstrate great judgment in the face of force and will.

The $33 million penalty—which would ultimately be borne by shareholders on Main Street—would have settled an SEC lawsuit filed against Bank of America, following its merger with Merrill Lynch & Co. The lawsuit accused Bank of America of lying to its Main Street shareholders, publicly promising that Merrill executives would not be rewarded year-end bonuses, while privately allotting upwards of $5.8 billion for bonus compensation.

Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. He argued that the settlement was not only inadequate—$33 million from shareholders for a $5.8 billion lie?—but also unjust and absurd in that it doubly punishes Main Street victims, who would ultimately pay the costs of the $33 million penalty. “It is not fair, first and foremost,” wrote Rakoff, “because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.”

Rakoff’s harsh language surely expresses the frustration shared by many Americans and perhaps suggests that business as usual on Wall Street will no longer be tolerated, at least by Jed Rakoff. And for that, we salute him as Main Street’s Player of the Month.

Stay tuned: Rakoff has scheduled the case for trial on February 1, 2010.

Assisted by Jessica Begen.

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I wish the average American was making $91,000.

Judge Rakoff of the Southern District of New York is our Person of the Week.  Why?  Because he wouldn’t rubber stamp a deal between the SEC and Bank of America, which allowed BofA to sweep under the rug its use of taxpayer money (from “Uncle Sam”) to pay $3.6 billion in bonuses to Merrill employees.

Merrill had lost $27 billion!   Are bonuses deserved on losses of that magnitude?  Should that be the norm?  Can the whole thing be swept under the rug for a mere $33 million dollar fine?

“No,” said our Person of the Week, Judge Jed Rakoff.

After some harsh questioning and just plain common sense, the Judge called the proposed fine “strangely askew” (to the $3.6 billion dollars in bonuses) and sent the parties packing, giving them 2 weeks to rethink and attempt to support the settlement.

Let’s be clear.  I have no issue with ample bonuses and huge salaries.  I’d take one.

But they should be a reward for:

• Creating shareholder value
• Extraordinary service
• Taking risks on new technologies
• Creating new jobs.

And they should not be paid by taxpayers.  They should not be paid for generating losses in a public company.  And they should not be made for churning trades and providing no value to folks on “Main Street”.

In an effort to defend the $3.6 billion in bonuses, BofA’s attorney Lewis Liman (our Imbecile of the Week) argued it only amounted to on average bonuses of $91,000.

Mr. Liman, what planet are you living on? How many:

• teachers;
• nurses;
• firefighters;
• legal aid attorneys;
• operators of homeless shelters; and
• community organizers

--even earn $91,000? Jed Rakoff stood up for “Main Street” this week and for that reason he is our “Person of the Week”.

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