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Lohier was the man in charge when the trail and evidence was still hot against the largest Wall Street banks for engaging in fraud and causing the greatest economic collapse since the Great Depression. Lohier did not bring one criminal case against any one of those banks’ executives. Now, he is sitting as Judge over the fairness of wrist slaps as a suitable alternative to the criminal cases he failed to bring.
I remember hearing really quickly (almost instantaneously) after that 2008 Bush/Paulson (final) moment of drama - you remember - that little tense TV command performance before the whole country about the immediate cash needs of their finance buddies - from some knowledgeable commentator on network broadcasting that Citigroup had much worse problems than the other culprits and that they'd undoubtedly be back for more helpings at the bailout window very soon.
Notice that no matter how high the fines are for the promises extracted to not "sin" against the public again (pause, for knowing giggles from Wall Street here), it's deja vu all over again.
What the Citizens United court case told us plainly was that the Supreme Court was owned outright by the rightwingnutters who believed that money (incorporated money, that is, so they can't be sued individually) now equaled power in a democratic republic (hint, that's what the USA used to be).
What the new cases involving subornment of the SEC tell us is that everyone else is also.
Coming to a state near you.
(Hint: North Carolina has already thrown in the towel (and the sponge!).)
The Untold Story of Why Judge Jed Rakoff Took on the SEC’s Shady Deal With Citigroup
By Pam Martens: June 9, 2014
U.S. District Court Judge, Jed Rakoff, of the Southern District of New York
Last week, three Federal appellate judges with lifetime appointments, meaning they will be receiving salary and benefits for as long as they choose on the taxpayer’s dime and then a nice, fat, secure pension also courtesy of the taxpayer, ruled that the very same public that makes their own existence so cushy is not entitled to truth or facts or justice when it comes to Wall Street.
Truth, facts, justice are quaint relics of a bygone American past. Today, when it comes to Wall Street, Federal judges are simply there to rubber stamp the settlements of captured regulators and then quickly re-ink the stamp for the next shady settlement.
To fully grasp what happened last week you will first need to purge your mind of everything you think you know about Federal District Court Judge, Jed Rakoff, rejecting a smelly deal fashioned between the Securities and Exchange Commission and Citigroup and getting slapped down by an impartial appeals court for doing so. Other than the fact that Rakoff did reject the deal, you’ve likely been misled on all other facets of the matter.
That’s the world we live in today: corporate-owned media and corporate-owned political appointments are producing corporate-owned reality.
For starters in the SEC v Citigroup case, Rakoff was not a lone voice in the wilderness calling out the SEC for sweetheart pacts with Wall Street that didn’t pass the smell test. Not only did 20 securities law experts around the country file amicus briefs arriving at the same conclusion as Rakoff in the matter (more on that shortly) but more than a year before Rakoff rejected the SEC v Citigroup settlement, Judge Ellen Segal Huvelle on August 16, 2010 in the U.S. District Court in Washington, D.C. rejected another SEC v Citigroup settlement deal that had the stench of cronyism all over it – and still does to this day.
The Huvelle case involved the SEC letting Citigroup off the hook for $75 million in settlement fines for falsely telling the public and shareholders it had $13 billion in subprime debt when it actually had over $50 billion.
And instead of charging senior executives with securities fraud for lying about the bank’s financial condition, the SEC dropped its fraud charges and let two Citi executives off the hook with $100,000 and $80,000 fines, respectively.
Huvelle was highly critical of the terms of the settlement but approved it a month later after the SEC tweaked the terms to attempt to show it would hold Citigroup accountable for any further lawbreaking.
But when Huvelle approved the settlement in 2010, she was not aware that there was a whistleblower inside the SEC who, five months later, was going to turn to Senator Chuck Grassley with written claims that this SEC settlement had been procured through untoward cronyism between Citigroup’s lawyers and the head of enforcement at the SEC at the time, Robert Khuzami.
According to the SEC’s Office of Inspector General which investigated the whistleblower’s claims against Khuzami, this is what transpired:
On June 28, 2010, Khuzami spoke on the phone with Mark Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison, the law firm representing Citigroup. Pomerantz and Khuzami knew each other from their work at the U.S. Attorney’s office in the Southern District of New York. SEC attorneys working under Khuzami had already decided to bring fraud claims against Citigroup’s CFO, Gary Crittenden, for misstating the amount of Citigroup’s exposure to subprime debt by almost $40 billion.On the call, Pomerantz told Khuzami that Citigroup would experience collateral damage if a key executive were charged with fraud. Shortly after this call, another Citigroup lawyer, Lawrence Pedowitz of Wachtell, Lipton, Rosen & Katz (the law firm that helped former Citigroup CEO Sandy Weill maneuver the repeal of the Glass-Steagall Act) told SEC Associate Enforcement Director, Scott Friestad, that Khuzami had agreed to drop the fraud charges against Crittenden. The Inspector General’s report says that Khuzami denies ever making this promise.
But the fraud charges were dropped and the deeply redacted Inspector General’s report does not inform the public as to how they came to be dropped. The report essentially whitewashes the claims against Khuzami, ensuring that fewer and fewer whistleblowers within or outside the SEC will go to the trouble of reporting wrongdoing.
The SEC’s Inspector General’s report is dated September 27, 2011 but it was not released to the public until November 17, 2011 – at which time it was obvious that someone had demanded confidential treatment for large swaths of the report, at times making the language unintelligible.
One gets the feeling that the delay was caused by those same Citigroup lawyers who seem to have their way at the SEC and took a machete to the findings.
There was further evidence residing inside the SEC that Citigroup’s CFO, Gary Crittenden, should have been charged with fraud. On October 23, 2007, the SEC’s Kevin Vaughn sent a letter to Citigroup, writing as follows:
“We note your response to our prior comment 2 in our letter dated July 3, 2007 in which you state that you did not disclose the amount of mortgage backed securities and residual interests collateralized by non-prime mortgages held by U.S. Consumer due to immateriality.
From your disclosures in your Forms 8-K filed on October 15, 2007 and October 1, 2007, it appears that you do have a material exposure to non-prime instruments as these instruments caused you to record a $1.56 billion loss in the third quarter.
Please revise to disclose the specific amount of your exposure to these types of instruments. Please separately quantify the amount of exposure related to loans held for investment, loans held for sale, investments held as a result of securitizations, and any other types of instruments you may hold for each segment in which you have exposure. Quantify the amount of non-prime loans you hold in your loan warehousing facility at each period end.”
Citigroup did not respond to that SEC demand for further information until December 14, 2007 and then, at that time, asked the SEC to protect its responses from the prying eyes of reporters or members of the public who might file a Freedom of Information Act Request (FOIA). Pages 22 through 32 of this correspondence have been completely redacted with the notation
“The following information has been redacted in accordance with Citigroup’s request for confidential treatment,” with no explanation at all as to why the SEC is still cowering to the secrecy demands of this serial miscreant.It is now more than six years later and the redactions remain on the SEC’s web site, further denying the public the truth about a global banking behemoth that was shored up with $45 billion in taxpayer equity infusions, over $300 billion in asset guarantees and $2.5 trillion (yes, trillion) in below-market rate loans to prevent an insolvent bank from causing alleged “collateral damage.”
On November 28, 2011, six business days after the news broke of the SEC’s Inspector General report revealing charges of cronyism between the SEC’s Director of Enforcement and Citigroup lawyers, Judge Jed Rakoff rejected the SEC’s $285 million settlement with Citigroup over charges similar to the Goldman Sach’s Abacus deal – except Citigroup had created a toxic debt instrument designed to fail and then shorted it itself, unlike Goldman which designed Abacus to fail but let a hedge fund do the shorting.
The SEC alleged in its complaint that Citigroup had falsely represented to its investors that an independent investment adviser had rigorously selected the assets. But knowing that the toxic debt would deteriorate further, Citigroup took short positions in some of the same assets, seeking to profit from their continued decline in value. Citigroup allegedly realized $160 million in “net” profits, while investors allegedly lost over $700 million.
And, yet, all the SEC was seeking from Citigroup was disgorgement of $160 million in profits, $30 million in prejudgment interest, and a $95 million civil penalty along with the requirement that Citigroup would undertake certain compliance measures for three years.
Rakoff, who repeatedly and unsuccessfully attempted to wring from the SEC the evidentiary basis for this weak settlement, wrote in his decision to reject the deal:
“Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are.”
The SEC and Citigroup separately appealed Rakoff’s decision to the Second Circuit Court of Appeals. One of the Judges assigned to sit on the appeal was none other than Raymond Lohier who had (wait for it) been the Deputy Chief and then Chief of the Securities and Commodities Fraud Task Force at the U.S. Attorney’s office in the Southern District of New York during the height of the financial collapse in 2008, 2009 and early 2010 when, amazingly, on March 10, 2010 President Obama nominated Lohier to become a Federal Appellate Judge, skipping that nuisance detail of first serving as a District Court Judge.
Equally amazing, Lohier was quickly confirmed by the U.S. Senate.
Raymond Lohier, Second Circuit Appellate Judge, At His Confirmation Hearing
Lohier was the man in charge when the trail and evidence was still hot against the largest Wall Street banks for engaging in fraud and causing the greatest economic collapse since the Great Depression. Lohier did not bring one criminal case against any one of those banks’ executives. Now, he is sitting as Judge over the fairness of wrist slaps as a suitable alternative to the criminal cases he failed to bring.
In his Senate confirmation hearing, it was noted that Lohier prosecuted the case against Bernard Madoff. It was not noted that Madoff turned himself in and confessed to the crime, after the SEC had for decades ignored evidence that Madoff was running the largest Ponzi scheme in history.
Nineteen securities law scholars filed a joint amicus brief with the Second Circuit Appeals Court explaining why Rakoff was correct to reject the Citigroup settlement. Harvey Pitt, the former General Counsel and later Chairman of the SEC, filed a separate amicus brief agreeing with Rakoff.
The nineteen securities law professors were from universities that included Duke, George Washington, Columbia, Villanova, Cornell and others. They told the court that:
“… the events of the last few years bear a striking resemblance to the events that led to the enactment of the federal securities laws eighty years ago. Those laws were enacted because Congress recognized that investor confidence is essential to strong and efficient capital markets.
In particular, Congress recognized the need to reform the securities sales practices of investment bankers that led to the 1929 Crash. Similarly, the turmoil of the current financial crisis has had a detrimental impact on investor confidence that needs to be restored.”
The securities scholars also informed the appeals court that:
“… the SEC’s complaint, if true, means that Citigroup engaged in serious and intentional fraud in disregard of the interests of its customers and for its own substantial gain. Yet, although the first sentence of paragraph one of the complaint labels this a ‘securities fraud action,’ the complaint charges Citigroup only with negligence…the prophylactic measures imposed for three years are relatively inexpensive measures that appear to be ‘window-dressing’…the penalties are modest, given the gravity of allegations, the investors’ losses, the harm to the public and the fact that Citigroup is a recidivist.”
The securities scholars concluded that, despite all of this, “The SEC and Citigroup essentially argue that district court should play no meaningful role in reviewing consent judgments and that the court must give total deference to the desire of the parties to compromise, without taking into account the public interest. This is not the law, nor should it be. This court should affirm the district court’s order denying entry of the parties’ proposed consent decree…”
Harvey Pitt, who joined the SEC in 1968, served as its General Counsel from 1975 to 1978 and its Chairman from 2001 to 2003, told the Court that:
“The invocation of this Court’s jurisdiction, however, poses a danger that, in arguing the district court abused its discretion, the SEC effectively contends the district court had no discretion to withhold approval of the settlement. Since there is no basis for that proposition, the danger is that courts, in response, may recalibrate the ‘nice adjustment and reconciliation between the public interest and private needs.’ Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944). That is a danger this Court should avoid…”
Lohier dominated the oral arguments in the case but when the final decision came out it showed that a different Judge wrote the decision: Rosemary S. Pooler. That’s likely because Lohier wanted to weigh in with a stricter interpretation in a concurring opinion.
The Court found that Rakoff had abused his discretion in not showing adequate deference to the SEC and by his ordering the case to go to trial. The Court wrote:
“Trials are primarily about the truth. Consent decrees are primarily about pragmatism.”
The Court, however, returned the case to Rakoff for continued deliberation. Lohier went further in his concurring opinion, writing:
“I would be inclined to reverse on the factual record before us and direct the District Court to enter the consent decree. It does not appear that any additional facts are needed to determine that the proposed decree is fair and reasonable and does not disserve the public interest.”
This whole affair sends the message to the public that we are looking at far more than generalized regulatory capture. It seems we are, specifically, looking at Citigroup’s lawyers capturing both the SEC and the Court that previously functioned as a check and balance over crony capitalism running amok in Manhattan.
Not to worry, Tim Geithner's double will soon arise to quell the latest taxpayer riot (and continue the flow of funds to the guilty who will then pay the new fines). My guess as to how all the above cronyism corruption continues to happen is simply due to the fact that Citigroup still gives (is allowed to give) a nice signing bonus. And lots of stock options if their stock continues to be valuable.
K I S S. Keep it simple, stupid.
Speaking of being "captured," how about Uber, the new company that wants to know where everybody is every second in order to "serve" you (up?) better/quicker?
If Andrew Ross Sorkin is correct, and, judging by the blue-chip investors who contributed to Uber’s last round, he is hardly alone in his optimism, Uber is positioned to become one of the most powerful companies in the world. Think about it: a single company that controls the dominant logistics platform in every major city on the planet. A company that is to logistics what Google is to information. That’s a company that immediately becomes a major player in the transnational, globalized economy; a company that a pliant Congress ends up crafting legislation specifically for.
. . . anyone who has tried out its app is well aware of how well it works. Press a button, and a car appears. Or maybe some takeout sushi. Or someone to pick up the package you need couriered across town. Or — well, who really knows? Christmas trees? Kittens? True love?
“Uber” is an appropriate name for a company with such built-in grandiosity. But let’s stop to think for a second about what we are trading in return for the convenience that Uber undeniably offers. We will be complicit in the creation of yet another massive corporation with immense economic and political influence. A company with such a huge global footprint would find it easy to outflank municipal regulators. Uber already gave us a sign of what it plans to do with its massive treasure chest when it hired a key New York city taxi and limousine regulator to join the company.
Big is not necessarily better when we are talking about the social fabric. An Uber that is worth $18.2 billion — or more — is an Uber unaccountable to local pressures, an Uber that, like Facebook, and like Google, knows too much.
Now that's a world to look forward to.
In abject horror.
Although . . . the libs have a plan to ease your abyss-gazing:
. . . we should not allow the floating clouds from Seattle and Denver to obscure the fact that Obama’s first term was absolutely dreadful on the drug war in general and pot in particular — arguably even worse than the paramilitary buildup of the George W. Bush administration.
Attorney General Eric Holder has frequently allowed federal pot laws to be used to hound and persecute medical marijuana providers in numerous states, and the administration’s abrupt about-face in the face of the new Colorado and Washington statutes – and the prospect of many other states following suit – is transparent political cowardice. Or perhaps it could better be described as obedience to a dog-whistle coming from Wall Street: At the very end of “Evergreen,” Morton and Cowan show us the arrival of venture-capital dudes with expensive suits in the Washington pot trade. Legalized marijuana, once properly tamed and harnessed, will be a multibillion-dollar business that promises to make rich people a lot richer.
If the pot issue has leading Democrats pinioned between their supposed social progressivism, their love of state power and their obeisance to the bankers, Republicans face a different three-way Hobson’s choice between their professed love of individual liberty, their poorly disguised hard-on for the police state and the fading demographic of “values voters” they can’t quite cut loose.
If I were a consultant for the GOP – well, first of all, whoever hired me would get fired, tarred-and-feathered and ridden out of town on a rail. But if I had five minutes before that happened, I’d fire up a bowl with whoever, Jeb Bush and Rand Paul and Paul Ryan (though I hate it when he gets the giggles), and tell them that cheeba is their golden opportunity, their ticket back into the game. While the Democrats pull long faces and talk about regulation and social responsibility and try to walk back 40 years of hypocrisy, the Republicans have about half a second to steal this issue out from under them, to become the Ganja Ol’ (Dirty Bastard) Party, the party of “Legalize It” and “Purple Swag” and “Pass the Dutchie.” They wouldn’t listen, of course. But we might get some actual politics back if they did.
Oh, and one final comment about the Cantor's tune going up in smoke(!):
Cantor was key to scuttling a bipartisan solution to the 2011 debt ceiling standoff (which some Democrats, myself included, probably want to thank him for). He boasted to the New Yorker’s Ryan Lizza that it was a “fair assessment” that he was the man behind House Speaker John Boehner’s pulling out of Grand Bargain talks with President Obama during the Grand Bargain negotiations of 2011. He argued that it was better to use the issue in the 2012 election.
This point of view, of course, cost Mitt Romney the White House, and also led to the 2013 government shutdown, but Cantor’s right-wing power play couldn’t save his political career. He’s been playing with fire, and finally his career went up in smoke. He spent an astonishing $5 million – only 2 percent of it raised in small contributions – to Brat’s $122,000.
This, of course, means there will be no immigration reform at any time in the foreseeable future. Long-term this is political suicide for the GOP, but its leaders are focused on 2014 and believe the key to success is turning out its anxious older white base. Tonight’s VA-07 result will only reinforce that conviction. But the 2016 race also got upended tonight. There’s been growing chatter about Jeb Bush mustering the gumption to make a run, now that Chris Christie seems mortally wounded, but it’s really hard to see anyone who called families crossing the border to the U.S. “an act of love” winning the GOP primary right now.
As John McCain strategist and comparative centrist Mike Murphy tweeted Tuesday night:
@murphymike: In the movie version, tonight is when Ted Cruz hears the news, lets out a maniacal laugh and orders a million Cruz for President yard signs
Just don't forget the Bush standing order.
BREAKING!
Reports: Eric Cantor to resign as House Majority Leader
By July 31.
So, he's in no hurry to leave (amid the shameless sad sodden friendless faces).
Right.
Such a nice boy!
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