Judge refuses to approve Citi-SEC settlement

http://online.wsj.com/article/SB10001424052748704…


A federal judge refused to approve a proposed $75M payment by Citigroup (C) to settle SEC charges over its disclosure of subprime-mortgage problems. U.S. District Judge Ellen Segal Huvelle said the settlement was neither fair nor reasonable, and asked the SEC why it pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged missteps of Citi's executives.

Interesting article. So Citi shareholders shouldn't be held responsible for the missteps of a few executives but its perfectly ok for that to be the case for both Goldman Sachs and Morgan Stanley... oh yeah, Citi shareholders = US Government, to whom a different standard of justice is applied.

 

edit: slight correction: read a couple of other covers of this story, and it may seem that the judge wants to shift payment from shareholder to executives, rather than increase them for both, as I originally thought (in line with the BofA case judge). Still, most of my original thought holds, so I'll leave it as it is.


Sorry, but I am firmly on the judge's side in this case. I haven't read that article (no subscription to the WSJ), and I read it on other sources, so perhaps that's why I don't understand your comment on shareholders not being held responsible. I am under the impression that both this judge, and the judge who grudgingly accepted a similar settlement with BofA, are arguing that both company (thus shareholders), and in particular the responsible directors should pay a way steeper price.

What bugs me both in this case and in the case of Hurd from HP is the board's unwillingness to challenge employees who perform bad, instead choosing to pay the problem away with company (thus shareholders')money. Sorry, I don't believe that there were only a couple of executives that misbehaved.

Come on people, this is a farce. We all know that the SEC is desperate to get back some trickle of moral authority, after becoming the laughing stock of the world. We saw it with Goldman's first and second trial (where, admittedly, they cashed in a nice check), and with these settlements with BofA and Citi. It's not so much the size of the settlements that bugs me: I can't judge whether 75MM is enough. It's that the company is paying for gross violation of the law made by its executives.

So, rant over, and I still don't see why the government being a shareholder is relevant here: this decision, if anything, goes against the government: both because the SEC mantains their clown hat, and because Citi (owned by the Gov) will have to pay a steeper bill.

 

@Frabjous

If you don't have a WSJ subscription, just Google the title of the article and click on the WSJ link. WSJ made all it's articles available for free if you Google the title.

Anyway, I'm glad that the judge is suggesting we pierce the corporate veil and screw over the real culprits. These guys make quasi-legal deals and let the company take the blame. I'm not a crybaby populist/socialist but we should punish criminals not corporations, which really means shareholders.

 
Best Response

There's a few issues here.

First off, my beef is with the inequitable fashion in which various financial institutions are dealt. Its an obvious sign of ineptitude and bumbling idiocy. Its reminiscent of TSA airport security that obviously has no idea what they're doing and is telling some passengers being screened they need to remove their shoes, some they need to remove their belts, some they need to remove their jackets and some they need to remove none or a combination of these but not the others articles.

Secondly, what the government wanted was to try to save face with Goldman. Now they are trying to "follow through" with other institutions. They got the token "we're not going to let them off easy" $550 million settlement from Goldman, now they're going after the "we're bringing everyone to justice" settlements from everyone else. Basically, there's 8 senators and only 3 were able to get the Executive Producer credits on the Bringing Goldman to Justice flick. The other 5 now want some sort of credits as well so come election they can taut how they are champions for the people, bring greedy Wall Streeter's to justice. The problem is, collectively the politicians got the big ticket $550 million payday... now they need to get the others. But they can't bite the hand that feeds them clearly off just below the elbow. They just need a little nip for everyone to see to keep the ruse going. $75 million is literally NOTHING to Citibank... they had $42 BILLION in revenue... thats roughly 30 heavy duty dump trucks full of $100 bills. You could probably pack $75 million in a steamer chest and plop it in the back of a 1996 Dodge Caravan.

 
Marcus_Halberstram:
There's a few issues here.

First off, ...

Secondly, ...

Well, yes. I agree with everything you said. I also understand what you originally meant by saying "double standard" - you are actually arguing that compared to Goldman, the others are being let of with a wink-nudge.

Still, this reinforces the point that the judge is correct in putting a plug on this and asking for more severe punishment. Or, as the BofA one said, even after increasing the payment 5 times, this is still "half-baked justice at best".

The fact that the gov is a shareholder of city doesn't seem to play a big role in this issue.

Also, thanks Victor.

 

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