Outspoken judge has mortgage ruling tossed

by Adam Smith05 Jun 2014
An appeals court has overturned an outspoken judge's decision to reject a bank settlement over allegedly fraudulent MBS deals.

In 2011, U.S. District Judge Jed Rakoff rejected a $285 million settlement between the SEC and Citi over the bank's alleged fraud in selling mortgage security investment to customers. In his decision, Rakoff claimed the settlement, which allowed Citi to avoid any admission of wrongdoing was "neither fair, nor
reasonable, nor adequate, nor in the public interest".

"Most fundamentally, this is because it does not provide the Court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards," Rakoff wrote in his decision.

But federal appellate judges in New York claimed Rakoff committed an "abuse in discretion" by rejecting the claim, The LA Times has reported. The appellate court ruled that judges ruling on proposed settlements reached by regulatory agencies had only to answer whether the settlement was legal, fair and untainted by corruption or collusion, and whether it resolves the complaint, not to "require, as the district court did here, that the SEC to  establish the 'truth' of the allegations".

Rakoff has been known for his strong opinions against the government's prosecution of corporations while leaving executives untouched.

“Companies do not commit crimes, only their agents do,” Rakoff wrote in an article for the New York Times Review of Books. “...So why not prosecute the agent who actually committed the crime? … The future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing.”

Poll

Should CFPB have more supervision over credit agencies?