Making Citibank Admit It is Wrong When It Admits It is Wrong Is Wrong to the SEC
The Securities and Exchange Commission, which governs and regulates the nation’s securities markets finds abuses and misconduct about every day. Its job is to recover the ill gotten gains from the malefactors and make sure the public knows what is going on when improper and illegal practices take place.
The SEC came under severe criticism when it reached a settlement with Citibank over a Citibank investment scam that was grossly intolerant of ethical and legal behavior, even by Wall Street standards. Citibank had put together a package of mortgage loans, loans that they knew were so bad that the package was like to lose almost all of its value. Citibank then sold the loan package to investors without telling them any of this and implemented an investment strategy to make money for Citibank when the package failed.
It is not clear how much money that Citibank made on the deal, but they reached an agreement with the SEC to pay a $285 million fine and the SEC did not require Citibank to admit to any wrong doing despite the overwhelming evidence that they had done something horrific. A federal judge decided this would not stand.
"The SEC's long-standing policy—hallowed by history, but not by reason—of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations, deprives the court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact," the judge said.
The judge rightfully condemned this lack of admission of guilt, recognizing that for many players on Wall Street, paying fines for malfeasance is just another cost of business.
In his order, Judge Rakoff said a settlement in which there are no admissions and modest penalties are "frequently viewed, particularly in the business community, as a cost of doing business" rather than "as any indication of where the real truth lies."
"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," the judge said. "Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."
The Dismal Political Economist was hesitant to post this comment and these words though. It shakes the very foundation his cynicism about investment bankers, Wall Street ethics and the lack of regulation when someone out there in public policy, in this case the Judiciary, is pursuing truth, justice and the American way. Why, the next thing that might happen is that Mitt Romney takes a consistent position on an issue.