"They who must be obeyed have spoken," the 71-year-old judge wrote Tuesday in his order approving the deal he had earlier rejected. Nevertheless, he continued, because of the tolerant directive of the Court of Appeals, the federal government's Citigroup settlement and others like it "will in practice be subject to no meaningful oversight whatsoever."
Rakoff's objections to the original settlement and his discontent with his marching orders from on high reflect his long-held viewpoint about justice on Wall Street and the courts' role in enforcing it. In an essay for the New York Review of Books last year, he fired a broadside at the government's hands-off treatment of Wall Street and banking fat cats in the aftermath of the financial crisis.
He was especially dismissive of the government's habit of prosecuting corporations, but not their executives. "Companies do not commit crimes," Rakoff wrote; "only their agents do...So why not prosecute the agent who actually committed the crime?"
By then he had made his mark as a skeptical reviewer of wrist-slap deals. In 2009, he tossed a $33-million Securities Exchange Commission settlement of a white-collar case with
The Citigroup case, as we reported in June, involved an alleged mortgage security fraud that netted Citi an estimated $160 million. In 2011, the SEC and Citi reached a deal requiring the bank to pay $285 million, but leaving out any statement of the facts of the case.
He objected that his court risked "being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest....An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous."
But the appeals court in New York thought Rakoff was being too tough on the little darlings. There, a three-judge panel lectured Rakoff that his only responsibility was to ensure that the deal was "legal," "fair" and "untainted" by corruption or collusion, and that it resolved the complaint.
They informed him that it wasn't his place to demand that the SEC "establish the 'truth' of the allegations."