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Few Avenues for Justice in the Case Against Citi

December 2, 2011

Few Avenues for Justice in the Case Against Citi

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Is anyone going to be held legally accountable for the financial crisis? When the Securities and Exchange Commission announced recently that it was settling fraud charges against Citigroup for a paltry (for Citigroup) $285 million, the only person actually named in the S.E.C.’s charges was Brian Stoker.

Never heard of him? He’s a 40-year-old Harvard Business School graduate and, until 2008, was a midlevel director in Citigroup’s “CDO structuring group” (he denied the charges and didn’t reach any settlement agreement). Charles Prince, the since-departed Citigroup chief executive at the time of the alleged misdeeds, isn’t mentioned. Four other Citigroup executives, including at least two senior to Mr. Stoker, are described in the complaint as being involved in the dubious transactions yet remain unnamed and uncharged.

This week Judge Jed S. Rakoff of Federal District Court issued a blistering 15-page opinion rejecting the proposed settlement, characterizing the penalty as “pocket change” for Citigroup and the overall settlement as “a very good deal” for Citigroup and a “mild and modest cost of doing business.” Confronted with allegations that Citigroup in customary fashion neither admitted nor denied, Judge Rakoff said he lacked an adequate factual basis for evaluating the settlement and ordered the parties to trial.

It looked like Citigroup and its wayward executives might finally get their due.

Or so I thought until I read the submissions in the case and did some further reporting. The S.E.C. may have been lucky to get what it did. It’s a textbook example of why it’s hard to hold anyone legally accountable for the financial crisis. You can’t fault the agency for not trying — it spent four years digging into Citigroup’s mortgage derivatives operation. If anything, the S.E.C. might be criticized for being too aggressive, using its considerable power to extract a settlement in a case whose weaknesses, if it finally goes to trial, will probably become readily apparent.

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