Occupy Wall Street Alternative Banking Group Files Amicus Brief on Side of Judge Rakoff in SEC v. Citigroup

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Below you’ll find the amicus brief filed by the Alternative Banking Group on May 21 in support of Judge Jed Rakoff’s ruling questioning a proposed $285 million settlement in the SEC v. Citigroup Capital Markets (ruing here, summary and discussion here). Judge Rakoff ordered the parties to trial, which resulted in both Citi and the SEC filing appeals.

Certain procedural issues led the appeal to be referred to the Second Circuit Court’s motion panel to determine whether the appeal should proceed. The panel took the unusual step of putting a stay on the lower court case at the Southern District of New York (even though the case was still pending), and in the process criticized Judge Rakoff’s position without deciding the merits of the case. The merits panel is now charged with deciding on the substance of the appeal.

You can find the SEC’s appeal here, Citi’s here. Better Markets has also filed an amicus brief supporting Judge Rakoff’s position.

The lead authors of this brief were Akshat Tewary, MBS Guy, Andrew Dittmer, and yours truly.

OWS AB Motion&AmicusBrief

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  1. Pwelder

    I’m glad this brief was filed. Some things have to be put on the record even if the chances of a favorable verdict are low.

    Would be interested to hear what the law mavens think of the prospects. Are we tilting at windmills here, or do we have a reasonable shot?

    1. Up the Ante

      “Judge Rakoff ordered the parties to trial, ”

      We may learn something new if the Judge decides his role is not to collapse into a ball of approved nothingness. I ask him here to assume his role of insisting the court demand justice for the people, not exclusively the lawyers’ guild.

      from the amicus,
      “.. this case is simply about whether a district court has the authority to demand the adequate production of facts to assess how a proposed consent order would affect the public interest. ”

      A judge should surely not seem to be dismissive of the public interest.

      “However, the SEC does not appear to have thought much about what the systemic effects of these misrepresentations might be. ”
      Do not add yourself to the SEC’s systemic effects, Judge Rakoff.

      see pg.23, Judge Rakoff, do you really want to be part of that ??

      1. LucyLulu

        Judge Rakoff is the district court judge who ordered the case to trial. Subsequently, the SEC and Citigroup appealed his decision and got a stay on Rakoff’s order pending a hearing on their appeals. Judge Rakoff is the “good guy” who is advocating increased transparency, whose decision the amicus brief supports, but who may be overruled by the appellate court.

      2. tawal

        I called the DOJ trice at: Department of Justice Main Switchboard – 202-514-2000

        Responses were:

        1) Computer telling me not a working number
        2) Voice mail (humanish) telling me “can’t take my call”
        3) No answer: Not picking up.

        All I wanted to ask is how often I am required to serve on Federal Jury Service, as they told me every 5 years and it’s only been 4

  2. craazyman

    Good . . . good . . . good . . . good vibrations

    I’m pickin up good vibrations
    That court’ll have excitations

    I’m bop n bop . . . good vibrations . . . I’m bop n bop . . .excitations . . . I’m bop n bop . . . pontifications . . . . elucidations . . .

    tough reading for a Blockhead until page 7 and then . . .

    Good good good good vibrations!

    I don’t know where but it’ll send them there . . .

    yeah yeah yeah good vibrations
    save the nation
    from Kleptocration

    da na na na na da na na

    Merits panel dudes and dudettes, I mean really already, remand the case! and save your f*cking country from these thieves.

  3. Jackrabbit

    Fascinating. Historic. Inspiring.

    Thank you to everyone involved (first and foremost, Judge Rakoff, who wouldn’t accept a BS settlement).

    I encourage everyone to read the document, but for convenience, here are some highlights (emphasis is mine).

    Typically, an injunctive order supporting an NAND settlement is an empty promise to “obey the law next time” and is rarely enforced. Not surprisingly, an analysis by the New York Times found that in the last 15 years, there have been a minimum of 51 violations of these agreements by major financial firms…. the Commission appears to have the view that requiring misbehaving entities to admit to wrongdoing is unduly harsh because that could facilitate private lawsuits. It is puzzling that the SEC is so exercised about the risk that private parties will become better informed about inappropriate behavior by regulated firms

    The SEC’s interest is to settle this case quickly in order to reduce its workload, given its limited resources. However, the public’s interest goes well beyond the SEC’s costs. The public has a stake in obtaining a) full transparency as to the specifics of this case, and b) punishment sufficient to deter abusive conduct in the future. Thus, the SEC is an imperfect proponent of the public interest, and its assertions that it represents that interest must be viewed skeptically.

    The global financial crisis has caused untold damage since its onset four years ago. To the extent that this crisis was caused by culpable behavior, as opposed to simple accidents, there is a clear public interest in identifying such behavior and in holding violators accountable in a meaningful way. We believe that the behavior highlighted in this case was not only destructive, but also was the tip of an iceberg of similarly destructive behavior. This NAND settlement forecloses any chance of shedding light on such behavior – and since this case was seen as particularly egregious, the SEC’s failure to reach solid conclusions about culpability here can be seen as emblematic of a general refusal to pursue the public’s interest in information and accountability.

    The SEC filing clearly describes a relationship (between Citigroup and the CDO manager) that was less than arm’s length, and depicts this situation as an industry practice. The clear implication is that this sort of misrepresentation was pervasive. However, the SEC does not appear to have thought much about what the systemic effects of these misrepresentations might be.

    …the public damage caused by CDO vehicles such as Class V Funding III greatly exceeded the monetary losses incurred
    by investors in these bonds.

    If there is no public interest in examining the behavior at the heart of the current financial crisis (which has imposed tremendous costs not just on investors in affected deals but on innocent bystanders worldwide through unemployment, austerity, and lower global growth), then nothing meets this standard. If this Court refuses to send this case to trial, it will have abdicated the role of the judiciary.

    1. backwardsevolution

      Jackrabbit – “The SEC filing clearly describes a relationship (between Citigroup and the CDO manager) that was less than arm’s length, and depicts this situation as an industry practice.”

      “Less than arm’s length” is an understatement. These banks were right in there, hand picking what would go into these CDO’s, while some CDO managers looked on, horrified. Propublica has done some great work in investigating these frauds. John Paulson was right in there, then walked away with a fortune. Everyone thought he was so clever. How clever are you when you rig the system in your favour? And Magnetar was in there too. I’d still be interested to find out who Magnetar’s backers were; no one knows.

      I say let’s haul all of them into court. Let’s air all of the dirty laundry in front of the court system. Let’s jail the guilty and strip them of their ill-gotten gains.

      This financial crisis was not a Black Swan, an unpredictable event.

      James Montier calls it as “Predictable Surprise” (using Max Bazerman’s term): a) at least some people were aware of the problem; b) the problem gets worse over time; c) eventually it explodes in a crisis.

      These guys knew exactly what they were doing, and the damage it has caused for society is most certainly something the court needs to look into.

      If the SEC doesn’t want to investigate, then wind that organization down.

      1. Jackrabbit

        Just to clarify, what you seem to have attributed to me came from the amicus brief.

        In fact, if you look back, most of “my” comment is snippets of the brief for reader convenience.

        1. backwardsevolution

          Jackrabbit – yes, I know it was from the brief; you gave some highlights. I only typed your name as I was replying to your post. Thanks.

      2. Lou Puls (@MonkeeRench)

        Good analysis, poor conclusion to “wind down” the SEC! The SEC doesn’t have the resources and talent to prosecute a corrupt county bean counter, much less the mountains of evidence against #Banksters that have been revealed over the last decade. It’s under-staffed by Shrub’s incompetent Christian-school “lawyers” who haven’t a clue about financial instruments of destruction. The SEC must be massively overhauled and increasingly funded until it can take on the massive level of fraud developed by corrupt gamblers, bank-rolled lobbyists, and bribed politicians over the past thirty years.

  4. JEHR

    Great work by you, Yves, and your compatriots. It is a wonderful thing you are doing and I sincerely hope that the case goes to trial and all Citigroup’s dirty laundry is aired out for all to see and marvel at!

    1. steelhead23

      A thunderous Hear! Hear! for our heroine. Madam, I admire you greatly – and think yours might be an interesting story to hear. Your book shows that you were indeed there and indeed, did that (played investment banker) – in the good ol’ days, when risk management was the very serious business of protecting the partners’ money. Quite a leap from there to here, eh? In the event that you find yourself in Portland, look me up (I’m in the book). I’d buy you a drink or three and sing your praises. You’re an uppity woman and Molly Ivins would be damned proud of you – as am I.

      BTW – very likely the courts will overrule Rakoff – but even if they do, your efforts were not in vain. Just today, you were in the NYT, suggesting something no lesser woman dare suggest – reinstating GS would be a “good start”. Good job. Next up, get them to publish a piece by you suggesting that Obama is countenancing fraud in the hopes of future mega-paydays ala Stoller’s shot at Clinton in today’s NC.

  5. Bent

    Judge Rakoff wrote, “In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

    1. Up the Ante

      And upon those words you shall be known. Some do not forget.

      An End to these contrived Spectacles !

    2. backwardsevolution

      Judge Rakoff – thank you! If the SEC refuses to support transparency, truth, and the safety of the public at large, then it is no longer doing its job. Thank goodness we have judges like you who will step up and try to complete the job they refuse to do.

      Thank you.

  6. run75441


    Two Clinton appointees and one Bush appointee. Can’t blame the stay on conservative judges. 2nd District COA face slap:

    The district court’s logic appears to overlook the possibilities (i) that Citigroup might well not consent to settle on a basis that requires it to admit liability, (ii) that the S.E.C. might fail to win a judgment at trial, and (iii) that Citigroup perhaps did not mislead investors.

    A still more significant problem is that the court does not appear to have given deference to the S.E.C.’s judgment on wholly discretionary matters of policy. The S.E.C.’s decision to settle with Citigroup was driven by considerations of governmental policy as to the public interest. The district court believed it was a bad policy, which disserved the public interest, for the S.E.C. to allow Citigroup to settle on terms that did not establish its liability. It is not, however, the proper function of federal courts to dictate policy to executiveadministrative agencies.

    “[F]ederal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: ‘Our Constitution vests such responsibilities in the public branches.’”

    Ahh, you really need to read the US 2nd District COA Stay.http://www.ca2.uscourts.gov/decisions/isysquery/8f0b3b04-fac0-4089-8092-16cb70b55547/1/doc/11-5227_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/8f0b3b04-fac0-4089-8092-16cb70b55547/1/hilite/

    They are firmly in Citigroup and the SEC’s corner.

    1. Nathanael

      The amicus brief is very important. It lays it out in terms which any newspaper can understand: if the court rules in favor of Citigroup, it has abdicated the role of the judiciary.

      That’s a dangerous thing to do, as people then have no choice but to take the law into their own hands. People will do so and other people will support them doing so.

      1. run75441

        My friend:

        It does not matter what a friend of the court believes. These are kings wearing black robes. Even the 27 year prosecutor has it wrong. Until you have been a defendant, you really do not realize the power of these small people in black robes.

        From what I read, Judge Jed ruling lacks precident and there is a wealth of history to back the COA up in their decision.

        1. LucyLulu

          The district court’s logic appears to overlook the possibilities (i) that Citigroup might well not consent to settle on a basis that requires it to admit liability, (ii) that the S.E.C. might fail to win a judgment at trial, and (iii) that Citigroup perhaps did not mislead investors.

          In response to (i) and (ii) SEC has claimed as much as part of their rationale for settlement (iii) there is compelling evidence that Citi did in fact mislead investors — they wrote disclosure for offering instead of Credit Suisse, and failed to mention they picked assets, not CS.

          The amicus makes a compelling argument, IMO, that Rakoff is not substituting his own policy for the SEC’s. He has not mandated any policy at all. He has only ordered a trial for fact-finding purposes before stamping his approval. Why require a judge’s approval at all if it is obligatory?

  7. RDE

    I note that you do not publish an email contact address or contact form for the site. Makes it rather difficult to send a suggestion or link to a post that you might find it worthwhile to publish.

    1. Aquifer

      Subscribe to the e-mail list and you will get an address you can use to send in links etc.

  8. Aquifer

    Way to go, Yves!

    But i noticed the first page was a request to be granted standing to file. Have you been given permission to file it?

  9. ajax

    It was interesting to read the proposed Amicus Brief.
    The CDO squared was set-up by Citigroup. The Brief
    mentions the Abacus deal, done by Goldman Sachs.

    I’d be interested to know what the Citigroup
    CDO squared in the instant case was called.

  10. Jill

    This is well argued and cited. I’m impressed with the judge and with everyone’s work here. Thank you!

    1. Sluggeaux

      This brief simply SINGS! Judge Rakoff never suggested that he wouldn’t ever approve a settlement, he simply required that the parties provide the court a factual basis for it. I’ve spent 27 years of my life as a state prosecutor, and I am floored by the lack of zeal on the part of our federal government — caused by the revolving door through which federal regulators blithely and unethically pass.

      That the smarmy Robert Khuzami can stand at the podium of the 2004 GOP convention to introduce the Patriot Act, step off to act as General Counsel for the Americas at Deutsche Bank in New York (where he no doubt vetted Greg Lippmann’s “Big Short”), and then be recommended to “Mr. Hopey-Changey” by the white-collar criminal defense specialists who took over the U.S. Department of Justice in 2009 to act as chief of enforcement, is a conflict of interest that simply takes my breath away. I can only imagine the consternation of Judge Rakoff, who as a lawyer led the team a Justice who put “junk bond king” Michael Milken in the federal pen.

      Well done!

  11. masaccio

    This is an excellent brief. It correctly focuses on the jurisdictional issue, pointing to the need for a hearing on the facts. Then you provide a brief statement of the material facts that demonstrates the need for clarification through discovery and testimony.

    Just excellent.

  12. Susan the other

    That was wonderful. I think this brief goes a long way toward informing future civil and criminal cases brought by groups and individuals against culprits like the very sophisticated and powerful Citi. I’m glad I read it; I almost didn’t because I’m getting so discouraged. I could hear Yves all the way through it, clear as a bell as usual.

    1. chris m

      i find it offensive that one commentator above simply ignores the notion that Clinton may have been in the pockets of Wall Street as he appointed two of the COA authors of the stay Order. I encourage the reading of the Stooller article yesterday concerning Clinton’s concerns with life after elective office. Let’s keep it real.

      1. run75441


        Have you ever been to a state court, a federal district court, or a federal COA? If you had been in any of those pleading your case, you would understand the thrust of my comments. That two Clinton appointees found fault with Judge Jed’s ruling is indeed unusual as Clinton picked fairly liberal judges who were no where near the likes of the idiots Thomas, Scalia, Roberts, or Alito. Bush certainly left his mark on SCOTUS and so far the Repubs have been blocking all new federal court appointees by Obama.

        Courts do not like to go to trial which is why 90% of all felony trials are plea bargained. If you make them go to trial, you will be dealt the harshest sentence you could ever get.Don’t go to court or you will lose.

        So Stoller has it in for Clinton? Clinton was just as dumb as most other presidents with the exception of a few. Why the hell Stoller would pick on Clinton when Greenspan, Rubin, Levitt, Summer Geithner, Phil and Wewndy Gramm, Weile, Dimon, Greenburg, Fuld,Prince Mozilo, O’Neal Cayne, etc were behind much of this. Have you bothered to read how the demise of Glass Steagall took place well before Clinton and how the National Banking Act was altered to allow Citibank and Traveller to merge?

        Stoller blaming Clinton is puffery and lacks substance. He signed a bill that Summers, Gramm, and Greenspan recommended to him so as not “to throttle a booming market.” As far as the Pres getting fees for speaking, they all do and Clinton is well liked for floating more boats with his collusion with Greenspan to expand the economy by raising taxes and keeping Fed Rates low. He was a damn better Pres than Boy-George Bush.

        1. LucyLulu

          If you make them go to trial, you will be dealt the harshest sentence you could ever get.Don’t go to court or you will lose.

          The death penalty might be an overly harsh sentence. Perhaps some might even make an argument that life imprisonment would be overly harsh. Since the SEC can only file civil charges, both are highly unlikely outcomes. Meanwhile, our financial elite continue with these same type practices undeterred. Why not? The only decision is whether the investors or the stockholders pay the penalties. The criminals get the bonuses while the public waits for the next time they crash the economy.

  13. chris m

    sorry, my preceding comment was not intended as a reply, but rather as a free staanding gripe all its own

  14. enouf

    aww c’mon …there should be 100s if not 1000s of comments on here saying nothing less than;


    not that we’ve yet won any semblamce in the re-instating of Rule of Law, but just for all the hard work and efforts put forth by our cherished Yves, and OWS, OWS-AB, Mr. Akshat Tewary, and all assorted staff/help, etc.

    If i understand correctly; see Cliffnote/Footnote [1] on page 9 of 27.

    Either way, this is just the start of peeling away the layers of that ever so nasty onion. Don your goggles folks ;-)


  15. LucyLulu

    Excellent brief! Very well written. I hope the court is equally impressed and gives it the weight it certainly deserves.

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