Judge Jed Rakoff taps into nation’s outrage over economic crisis
The economic crisis has brought out the populist in many politicians and others. Among the more unlikely ones may be a silver-bearded federal judge who has wasted no chance to tell the country’s biggest banks what he thinks about how they operate.
When Bank of America Corp. was trying to settle civil charges over its conduct in its purchase of Merrill Lynch, U.S. District Judge Jed Rakoff wrote that the bank’s executives had led what “could have been a bank-destroying disaster if the U.S. taxpayers had not saved the day.”
Addressing how the firm pays its top people, the judge spoke in February of “the incredibly bloated compensation of too many executives in too many American companies.”
In another case, Rakoff called JPMorgan Chase & Co.'s handling of a major client improper at the very least, “if not a downright sham.”
He condemned not only big banks but also their regulators, saying the Securities and Exchange Commission’s enforcement in the Bank of America case did “not comport with the most elementary notions of justice and morality.”
“He has tapped into some of the national and populist outrage that has followed the economic meltdown,” said Anthony Barkow, executive director of the Center on the Administration of Criminal Law at New York University. “He’s made an intellectual and legal case for what a lot of people are thinking based on their own common sense.”
Rakoff has even become a reference point in the legal world. In chastising the SEC last week in the online magazine Slate, Eliot Spitzer, who as New York attorney general took on Wall Street, pointed to Rakoff’s rulings. When another judge criticized the SEC recently, a Wall Street Journal blogger said that judge had “pulled a Rakoff.”
Some defense lawyers privately describe Rakoff as a publicity-seeking maverick. Even fans say he is not a fun judge to appear before.
“He certainly gave me, as a prosecutor, a little lecture, which I didn’t often get,” said Steven Feldman, a former assistant U.S. attorney. “You know that you have to be on top of your game with Judge Rakoff -- ready to take it to the next level.”
In an interview in his chambers in Lower Manhattan, not far from Wall Street, Rakoff, 66, spoke cheerfully about the controversy that surrounds him. He compared his judicial philosophy to the values underlying baseball, a passion of his along with bridge and ballroom dancing. (One of his opinions in the Bank of America case quotes Yogi Berra.)
“One of the many things I like about baseball is how it combines individual talent and teamsmanship,” Rakoff said. “In baseball you have individual responsibility, and if you fail it, you get an error. But at the same time your focus is on the common goal of the team to win. This is part of what resonates with people about baseball. This is how they would like society to work.”
The Philadelphia native and Harvard Law School graduate joined the federal bench in 1996 after being appointed by President Clinton. He spent seven years early in his career in the financial crimes unit of the U.S. attorney’s office in Manhattan.
“Once I really got into securities fraud prosecutions,” Rakoff said, “I came to realize how central they were to the maintenance of a free market and how, in many ways, they are far more important to the welfare of our society than many of the more sensational criminal cases that one hears about.”
Rakoff may retain some of his prosecutorial attitude.
“Deep down I think this is someone who is primarily a prosecutor,” said John Coffee, who teaches a law school course with Rakoff at Columbia University. “He’s got a strong moral perspective that there is right and wrong, and there are things that shouldn’t be done.”
Relying on that perspective, the judge has consistently pushed the SEC to take action against the people responsible for financial misdeeds, not just the companies.
“If crimes are committed they are committed by people, they are not committed by some free-floating entity,” Rakoff said. “These companies and other entities don’t operate on automatic pilot. There are individuals that make decisions -- and some make the right decisions and some make the wrong decisions. If the decisions they make break the law, they are the ones who are responsible.”
Lawyers say Rakoff approaches every case seriously, regardless of its scope. In one criminal case, a defendant complained about his treatment during a routine traffic stop. Rakoff had the entire court travel at 10 p.m. on a Friday to the Bronx intersection where the incident occurred.
“I wasn’t a huge fan of doing that, but I respected it,” said NYU’s Barkow, who was the prosecutor in the case.
Rakoff has also made some notable rulings in nonfinancial cases. In 2002, he found the federal death penalty unconstitutional. An appeals court overturned his ruling later that year. In 2006, he compelled the U.S. government to release information about detainees at Guantanamo Bay in Cuba.
But because Rakoff works in Manhattan, he gets a steady stream of cases dealing with high finance.
On Monday, saying he needed more information, Rakoff refused to approve an SEC settlement with a securities trading firm tied to a high-profile case of alleged hedge fund insider trading.
Late last month, he rejected Citigroup Inc.'s bid to have a lawsuit against it thrown out. Last week, he dismissed a case brought by pension funds against rating firms Moody’s and Standard & Poor’s.
For now, Rakoff’s greatest long-term effect is likely to come from the Bank of America case. Last year the judge rejected the company’s first settlement with the SEC, saying the $33-million payment that had been negotiated was insufficient. He ultimately approved a revised accord that called for a $150-million payment.
The case has sent a clear message to the SEC, securities lawyers say.
“What he was trying to do in part is to shake up the agency and prod them to work harder -- to do better investigations,” University of Cincinnati law professor Barbara Black said.
SEC enforcement chief Robert Khuzami told the Washington Post last week that the agency, as part of an effort to be more aggressive, might detail its findings of wrongdoing in cases that the agency settles.
Rakoff says he gave up any hope of moving to a higher court when he ruled against the death penalty -- and says he has no desire to be anywhere else.
“To have the thrill of seeing actual people testifying in hotly disputed matters -- to see a jury at work -- I cannot tell you how enticing it is,” he said. “I love my job. That’s the bottom line.”