In the latest deal, with no admission of guilt, the SEC fined Citigroup for $160 million in illicit profits, even though regulators claim Citigroup profited by $700 million.
Please consider Judge Unloads on Deal SEC Struck With Citi
A federal judge sharply questioned the Securities and Exchange Commission about why it didn't force Citigroup Inc. to admit to "what the facts are" before the agency agreed to settle a mortgage-bond case for $285 million.No Lessons Learned, Citi Still Too Big to Exist
During an hour-long hearing Wednesday, U.S. District Judge Jed S. Rakoff, an outspoken critic of the SEC's approach to securities-fraud settlements, challenged the SEC on why the regulator allowed Citigroup to settle the case using boilerplate language in which it neither admits or denies wrongdoing.
"Why does that make any sense in this context?" the judge said.
Judge Rakoff didn't issue a decision on the Citi settlement Wednesday, saying he wants to think about the case and issue an opinion later. He also expressed other concerns.
He questioned why the SEC only sought $160 million in alleged illicit profits—the regulator claims Citigroup profited from the deal—when investors may have lost more than $700 million in the deal.
"They're out something like $600 million, so the net effect of this is, you're only returning a small fraction of what the plaintiff's lost, yes?" the judge asked.
The judge also asked Citigroup lawyer Brad Karp if the company admitted to the allegations. He said the company didn't. "If it's any consolation, we don't deny them either," Mr. Karp said.
As long as the rules of the game are such there is no chance of being fined more than illegal profits are made, banks will ignore rules and go for illegal profits.
The SEC has learned nothing from these deals, but the financial sector has. Banks have learned they will profit more from illegal activities than they will be fined if they are caught. The added bonus is they are unlikely to get caught in the first place.
Such actions prove Citigroup remains too big to exist even though Citigroup CEO Claims Citi has Learned a Lesson on Leverage and Banks Should be Banks, Not Supermarkets.
Banks should be banks, not criminal operations. Then again, some might wonder, is there a difference?
Mike "Mish" Shedlock
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