Kudos to U.S. District Judge Jed S. Rakoff for speaking the truth: Some corporate behemoths in this country are getting away with only a slap on the wrist for egregious wrongdoing.

The judge refused Monday to rubber-stamp a $285 million settlement between Citigroup and the Securities and Exchange Commission, the latest in a series of cases involving major financial firms and the 2008 meltdown.

Citigroup was accused of marketing a $1 billion mortgage fund filled with securities it believed would fail, then betting against its customers. Investors took a $700 million bath, while the firm pocketed $160 million in profits.

Pointing out that Citigroup did not have to admit any misconduct, Rakoff said he was unable to determine whether the settlement was "fair, reasonable, adequate and in the public interest," as required by law.

The judge also argued that the $95 million fine proposed as part of the deal is "pocket change" for a company like Citigroup. He noted that the settlement did not actually require that the SEC give any of the money to defrauded investors.

"If the allegations of the complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business," he wrote in his ruling.

The SEC says it has to settle such cases because it does not have the money or staff to win in court against wealthy Wall Street firms. By not having to admit fault, the corporations protect themselves against investor lawsuits.

But if the government isn't going to stand up for investors and consumers, who will?

SEC officials also argue that such settlements are backed by "decades of established practice throughout federal agencies and decisions of the federal courts."

That doesn't make it right, or wise.

This ruling could cause more of these cases stemming from the 2008 Wall Street crash to go to trial. Yes, that would mean more time and expense. But it could also reveal some truths about what really happened and who is to blame. That reckoning has been put off for far too long.

Rakoff, appointed to the federal bench by President Bill Clinton in 1996, is known for his independent streak. He also made headlines this month when he slapped a Wall Street financier, sentenced to 11 years in prison by another judge for insider trading, with a record $93 million civil penalty.

He is a frequent critic of the SEC's actions. After he rejected a $33 million settlement with Bank of America, the SEC presented further evidence and came back with a $150 million settlement the judge did approve. Rakoff is particularly critical of what he calls repeat offenders – firms like Citigroup that have settled other fraud cases without admitting or denying the allegations.

If these were a string of robberies or burglaries and the perpetrator was escaping with just a fine and no conviction, there would be justifiable outrage. Why is it so different when it involves a big corporation?

By rejecting these settlements, Rakoff is asking some uncomfortable, but necessary, questions about justice in America.

The Bee's past stands

"As part of the $285 million deal, investors whose pockets were picked will be reimbursed, and Citigroup will pay a $95 million fine. That might seem like a serious penalty, except that two days before the settlement, Citigroup reported that its third-quarter profit soared by $3.8 billion over the same period in 2010."

– Oct. 22, 2011

© Copyright The Sacramento Bee. All rights reserved.