U.S. Judges Sound Off on Bank Settlements

EDITOR’S NOTE: It’s always slower than we want. But the Bench is starting to groan at the absurd “settlements” being reached that are actually a vehicle for immunizing the major players from liabilities that vastly exceed the settlements. In most cases, class actions, government actions and other major agency complaints at state and federal levels are being settled for a tiny fraction of a penny on the dollar. It sounds like a bunch of money when you see hundreds of millions of dollars on the table. But what is that when they took trillions?
August 23, 2010

U.S. Judges Sound Off on Bank Settlements

By BINYAMIN APPELBAUM

WASHINGTON — Everything was rolling along traditional lines. A bank broke the rules. The government found out. The company agreed to pay a fine and improve its behavior.

And then the judge assigned to approve the deal blew his top.

In a scene that is becoming increasingly common, Judge Emmet G. Sullivan of Federal District Court chewed out federal prosecutors at a hearing in Washington last week for a proposed settlement with Barclays.

“Why isn’t the government getting tough with banks?” he asked.

Just one day earlier in the same courthouse, Judge Ellen Segal Huvelle refused to sign a settlement between the government and Citigroup, demanding, “Why would I find this fair and reasonable?” She ordered government lawyers to return with answers next month.

The scoldings from the bench are a striking departure from a long tradition of judicial deference to settlements formulated by federal agencies, reflecting broad disenchantment not just with Wall Street, but with its government overseers.

It is a pattern that began last year, when Judge Jed S. Rakoff of Federal District Court in Manhattan denounced the Securities and Exchange Commission for going easy on Bank of America, which the agency had accused of misleading its shareholders.

“The courts are staking out a role that frankly we seem to need,” said Jill E. Fisch, a law professor at the University of Pennsylvania. “They are standing in for the general public, the public interest, and demanding more” from regulators.

The immediate impact, however, has varied. Courts have limited power over settlements. Judge Rakoff persuaded the S.E.C. to punish Bank of America with a larger fine, but Judge Sullivan gave grudging approval last week to the deal between the Justice Department and Barclays after airing his concerns for a second day.

Experts also disagree about the long-term consequences. Some, like Professor Fisch, expect regulators to seek more punitive settlements. Others said that agencies instead would favor lenient penalties that do not require judicial review.

M. Todd Henderson, a law professor at the University of Chicago, said the impact would be determined by the public’s reaction.

“I think it’s a public relations stunt more than anything else,” Professor Henderson said. “The court is trying to make it public that the government may be cutting cozy deals, because it is the public that ultimately controls the executive branch,” which includes the Justice Department and the S.E.C.

Litigants are generally free to settle cases on agreed terms, but the law grants judges a narrow mandate in some cases to reject settlements that they believe do not serve the public interest. In the cases at hand, the judges expressed concern that the government was claiming victory without holding companies properly accountable — an approach Judge Rakoff described last year as creating a “façade of enforcement.”

The Barclays settlement, which Judge Sullivan approved last week, involved charges that the British bank helped customers in Iran, Cuba and other sanctioned nations move more than $500 million into the United States, breaking federal law — and undermining national policy — for more than a decade. The bank distributed instructions to employees for circumventing internal controls, for example by obscuring the source of the transfers.

Moreover, employees knew the transfers were illegal.

The cover sheets “must not mention” the offending entity, which could cause the funds to be seized, one employee wrote in an e-mail quoted by prosecutors. “A good example is Cuba, which the U.S. says we shouldn’t do business with but we do.”

The Justice Department agreed not to pursue criminal charges against the bank. In exchange, Barclays admitted to wrongdoing, forfeited $298 million and agreed to improve employee training.

Justice defended the settlement as a “serious sanction,” and said it did not seek a larger fine because Barclays had disclosed the crimes and cooperated with prosecutors.

“The public looks at this and says, you know, they’re getting a free ride here,” Judge Sullivan told government lawyers last Wednesday. He said he had agreed to approve the settlement despite his concerns because it was not his job to supervise the department.

Under the terms of Citigroup’s proposed settlement, which Judge Huvelle has questioned, the bank would acknowledge concealing from shareholders the extent of its investment in subprime mortgages, which totaled more than $50 billion in 2007. The chief financial officer at the time, Gary L. Crittenden, told investors that the bank’s exposure totaled only $13 billion.

The S.E.C. calculated that the company realized an economic benefit of up to $123 million from its misrepresentations, but proposed to settle for a fine of $75 million.

“You expect the court to rubber stamp, but we can’t,” Judge Huvelle said.

Judge Rakoff told an audience at Stanford in June that he hoped other judges would follow the example that he set last year in the Bank of America case. That case, he said, “may enable some of my colleagues to be a little more proactive in assessing S.E.C. settlements in the future.”

“I like to think that it will contribute to greater justice.”

But David S. Ruder, chairman of the S.E.C. in the late 1980s, said that regulators were in a better position to determine the fairness of a settlement because they commanded both the specifics and context of each case.

“It’s my view that by and large the judge ought to give great deference to the judgment of the agency as to what’s the appropriate punishment,” said Mr. Ruder, now a law professor at Northwestern University.

The three judges, all appointed to the district courts by President Bill Clinton, have shown particular frustration with the government’s failure to punish individuals.

Judge Rakoff repeatedly questioned the S.E.C.’s decision not to bring charges against the Bank of America’s executives. The agency described their conduct as negligent but not fraudulent. The New York attorney general, Andrew M. Cuomo, has since filed civil fraud charges against the former chief executive Kenneth D. Lewis and another executive. They have denied the allegations, and the case is pending.

The Citigroup case includes companion settlements with Mr. Crittenden and another executive. But the S.E.C. said in its complaint that other executives also had been aware of the legerdemain, prompting Judge Huvelle to demand an explanation as to why other Citigroup executives were not cited.

And the Justice Department did not seek to hold any employees responsible for the crimes that it attributed to Barclays, leading Judge Sullivan to observe that corporations are inanimate objects.

“You agree there must have been some human being who violated U.S. laws?” he asked the government’s lead lawyer.

He proceeded to ask that same question in a dozen different ways, growing increasingly exasperated with the answers, until he finally interrupted the government lawyer to ask, “Can I just share a thought with you?”

“You know what?” he asked. “If other banks saw that the government was being rough and tough with banks and requiring banking officials to stand before federal judges and enter pleas of guilty, that might be a powerful deterrent to this type of conduct.”

14 Responses

  1. CO MINGLING OF FUNDS IS OUR ONLY REAL HOPE. WE NEED A DISCOVERY FOR COMINGLING OF FUNDS.

    OF COURSE THEY HAVE DONE OTHER THINGS THAT ARE WRONG BUT COMINGLING OF FUNDS SHOULD CHECK MATE THE BANKS

    UNTIL THEN WE ARE ALL RAMBLING.

    WE ALSO UNFORTUNATELY HAVE TO PRAY FOR THE REAL ESTATE MARKET AND THE STOCK MARKET TO GO TO REALISTIC NUMBER ANOTHER 50% DROP IN BOTH MARKETS. AND I AM BEING GENROUS. THE STOCK MARKET SHOULD BE AT 4k AND THE HOUSEING MARKET IN THE MAJOR CITIES SHOULD AND WILL GO DOWN ANOTHER 50%.

    THEN THEY WILL BE FORCED TO DO LOAN MODIFICATIONS AT NORMAL RATES. By then we will have good discoveries and will get our properties back with interest

    ALL THE REST IS NONESENSE AND CANT ANSWER THE QUESTION DID YOU TAKE THE MONEY?

    YES BUT THEY ARE COMINGLING FUNDS WHICH IS A SERIOUS CRIME, THE BANKS WILL HAVE TO BACK OFF OR GO TO JAIL

    COMINGLING OF FUNDS AND DISCOVERY

    BACK TO BASICS

  2. angry & NOT TAKING IT ,

    I agree with your points in general , the notary is a serious weak link … they all took their responsibilities WAY too lightly and ignored the legal peril they were putting themselves in.

    I think pushing states to nullify all assignments and transfers that were not legally recorded at the county (no MERS & no in-house recordkeeping) is the way to go.. They were a victim too in that they were cheated out of billions in fees.

    On a lighter note ,,, the word is PIQUED , and the Catholic Church wasn’t the “bad guy” in the Spanish Inquisition , it was basically a “mop up” operation after the Islamic invaders were pushed out of Europe (look up the history of Cordoba, Spain) ,, one surprising “good guy” is Vlad the Impaler (Dracula) … he kicked ass, his castle was the high water mark of the islamic invasion.

  3. Traditional Measures will achieve nothing. We didn’t win Independence by using Traditional Measures.

  4. The Ins. companies insure to protect victims from notary fraud and misconduct. But for the bond, the Notary would not be able to be … a Notary! Is that where the fraud begins???
    Tens of thousands, if not more, fraudulent Notarial Undertakings … SHOULD THE INSURERS BE WORRIED???

  5. angry & NOT TAKING IT!:
    PERFECT … This is exactly the direction to take this … if confronted and under oath, the Notary will roll over on their employer (in our case Ocwen/”Scott Anderson”) …
    the notary is the key.
    It’s obvious that they had assembly line fraud – in our case she didn’t sign her own signature and somebody else signed for Scott Anderson. When you get a testimony from the notary … then the ‘Assignment’ is null & void.

    “NEIL IS CORRECT FRAUD GOT US INTO THIS MESS AND ONLY THE PROSECUTION OF FRAUD WILL GET US OUT.”

  6. this is from the linked page..

    my take is this attny has determined the”Al Copone tax evasion ” weakness with the fraudulent paperwork of the mortgages is by attacking the notaries.
    ..other on this blog have posted where they ” PEAKED the judges interest” with their claims of filing charges or an investigation of these “Notaries” involved with their case. Case in point CHARGES MUST BE FILED AGAINST THE NOTARIES to rebut the presumption of truth the banks get thru fraudulent “Notarized documents” .

    “We need to file charges with the Secretary of State, County Attorney, State and Attorney, FBI, etc.
    I believe if we derail the notaries we will derail the current inquisition just as I believe if people had done so centuries ago they would have derailed the Inquisition then.
    Everything they are doing now, as they did then, is based on notaries verifying lies as truth so they “leaders” could do as they were told by thier leaders. Back then it was the Catholic church, today it is the banks. Lets learn from history instead of repeating it.

    Abridged Treatise on the similarities between the Religious Inquisition of the Middle Ages and the Banking Inquisition of Modern day America”

    http://privateaudio.homestead.com/Mike-Rothermel-on-Mortgage-Fraud-pg-2.html

  7. Problem. Reaction. Solution. All at the expense of the home owner and US Tax payer. They have it figured out.

  8. THIS IS THE TIME< IT IS ELECTION SEASON

    Let us leverage our issues and concerns with their interest to remain or to achieve office.

    Yes we can get all legal and learn all the relevant defenses and be better than a Harvard or Columbia lawyer, however, these lawyer, these judges all of these politicians need our votes, why do we give it to them so freely?, in politics there always a trade.

    Why are we letting these people trade the future of our families free of consequences and demands?

  9. This is so important now that we have been talking about trying to organize. We need to start applying pressure from different areas.

    The real enforcement will come if, let us say, if the FEDERAL GOVERNMENT and-or STATE regulator actually revoke the license and charter of at least one of these banks. Banking to the population and citizens of the USA is a privilege, not a right for these banks. Why is it that these @##$%^g regulators believe that if the shut down a big bank the whole system is going to crack?, well it only shows that by having that relaxed and subordinated attitude to these banksters, we are where we are right now.

    I applaud these judges, and pray for those judges still hammering the heads, robbing the american citizens of their homes by sleeping with the enemy that they realize their mistake and start being real judges.

    That is why, by suing, and being politically active is so necessary. The earth is shifting under our feet and we are not being active participants of what will shape our communities in the short, mid, and long term.

    The politicians are very smart when they use fringe issues to create their momentum and we the people fall easy pray to that. The perfect example is ARIZONA, they have used the immigration issue as a wedge issue to promote their interests and have pushed the foreclosure and unemployment crisis of of the mix.

    We need to push these politician to give as answers and to generate solutions that are relevant for us.

  10. OOPS I FORGOT. AND AN INCREASE OF BANKRUPTCIES BOTH PERSONAL AND CORPORATE.

    GET OUT YOUR UMBRELLAS THE SH—–T IS GONNA HIT THE FAN IN AMERICA. AND THE B-52’S ARE DROPPING THE SH——T

    ALL THE JUDGES HAD TO DO IS ENFORCE THE LAWS. TO QUOTE NEIL GARFIELD THE GREAT

    “FRAUD GOT US INTO THIS MESS AND THE PROSECUTION OF FRAUD WILL GET US OUT OF THIS MESS.”

    IF IT IS NOT TOO LATE.

    G-D BLESS AMERICA

  11. Stomach wrenching: and it is particularly interesting to note that Judges Emmet G. Sullivan, Jed S. Rakoff, center, and Ellen Segal Huvelle are all President Clinton appointees.

    This article is also seminal in that it arrives very shortly after the Supreme Court decision which allows these same criminal corporate banks to now start making political donations.

    Maybe we need to add the lexicon Judge Rakoff’s phraseology: it’s all a “façade of enforcement”.

    And the end of day – what is really going on here is that legitimate corporate entities are being hijacked by individuals (natural persons) who are then managing to get the shareholders to suffer the consequences and pay the bill.

    The light at the end of the tunnel might be that the shareholders will rise up against the natural person stewards of the corporations which have been bankrupted by these sorts of shenanigans.

  12. HOUSE SALES ARE TANKING
    THE STOCK MARKET IS TANKING
    UNEMPLOYMENT IS GOING UP AGAIN
    NOBODY IS BUYING ANYTHING.

    ARMAGEDON IS GONNA HIT THE UNITED STATES OF AMERIFRAUD.

    AND NEIL IS CORRECT FRAUD GOT US INTO THIS MESS AND ONLY THE PROSECUTION OF FRAUD WILL GET US OUT. IF IT IS’NT TOOO LATE.

    G-D BLESS AMERICA

  13. One other thing–you can always ask the judge to deny the confidential clause–asking does not hurt. You may get a sympathetic judge–but assume that the defendants will demand confidentiality. You should ask it to be mutual always especially if there is a penalty if it is violated so there is an equal shot that they violated it. Also, also include language to the effecct “the fact of settlement is not confidential, only the terms”.

  14. my griipe when I did civil rights litigation was that settlements were always confidential–that is if you wanted to settle. The judges never questioned it. Confidential settlements in cases like this or in civil rights cases where there is a clear pattern of discrimination in a company DO NOT SERVE THE PUBLIC INTERESTl Companies want to protect themselves from a flood of litigation, but sometimes a flood of litigation is what they need. Judges should be denying tehse confidential settlements that come to them and let the public know that these settlements are occurring and the general nature of the terms. That is the only way that change will occur.

    However the likelihood of this happening is nil in my opinion–sad but true. If you think that is goig to change I’ll sell you the brooklyn bridge–5 times over!

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