If New York was mother to many of the evildoers in the financial disaster that sent the economy into a tailspin, it's also home to an avenging angel for the millions of ordinary Americans who lost billions of dollars in the meltdown.
The guy with the wings and the sword also wears robes: He's federal Judge Jed Rakoff. The shock waves from Rakoff's scathing denunciation last month of a proposed settlement between the Securities and Exchange Commission and the Bank of America are still rippling through Wall Street and Washington.
Bank of America CEO Ken Lewis is on his way out, and New York Attorney General Andrew Cuomo is pressing an investigation into the deal in which the bank purchased ailing Merrill Lynch last December without telling its shareholders that executives of the tottering brokerage were paid $3.6 billion in bonuses shortly before the takeover was announced. A congressional panel is also probing the deal.
The common-sense wisdom of Rakoff's ruling resonated with a public infuriated with billion-dollar bonuses and bailouts. The SEC signed off on an agreement in which the bank agreed to pay $33 million (in shareholder money) for concealing the bonus payments from the shareholders. In effect, the victims were being punished, a topsy-turvy outcome fairly typical of the SEC's handling of wrongdoing by large corporations in cases like these.
"Oscar Wilde once famously said that a cynic is someone 'who knows the price of everything and the value of nothing,'" Rakoff wrote.
The proposed consent judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.
Rakoff's ruling may well mark the dawn of a new era in corporate accountability, since the judge has pressed for the names of the bank executives responsible for hiding the bonus payments.
"I think Judge Rakoff resented the degree to which a government agency was seeking to pull the wool over his eyes, and just blandly stating it was his duty to rubber-stamp their settlement," said Columbia Law School professor John Coffee, who teaches a seminar on white-collar crime at Columbia with Rakoff.
The federal jurist who overturned the Wall Street applecart is a 66-year-old workaholic who neither smokes nor drinks, according to friends and colleagues. In keeping with that New York theme, Rakoff enjoys Broadway show tunes and once dreamed of becoming a lyricist. The judge and his wife of 35 years, Ann, have three daughters. The couple enjoys ballroom dancing.
He admires the writing of Kafka and Arthur Miller, and is himself admired for legal opinions filled with sharp writing and laced with wit. His legal hero is Benjamin Cardozo, the Supreme Court justice from New York whose lofty reputation rests partly on his writing skill.
Lawyers who know Rakoff mention three qualities that mark his style as a jurist: intelligence, independence and a thoroughness that can turn the resolution of an apparently routine legal question into a day-long hearing.
"He is one of the best federal judges that I have ever seen," said criminal defense lawyer Gerald Shargel, "because he's the smartest guy in the room, he's painstakingly fair, and he never kowtows to the government."
Last summer, Rakoff imposed a 20-year-sentence on Shargel's client, Marc Dreier. (Dreier, a prominent Manhattan lawyer, financed a Gilded Age lifestyle for himself by selling fake promissory notes to hedge funds and other investors. He stole about $400 million before he was caught impersonating a lawyer for a Canadian retirement fund he hoped to loot.) Given the temper of the times, and the irritability of the public, Shargel found himself treated like a winner by other lawyers after the sentence was announced.
Bernard Madoff had gotten 150 years for his $50 billion fraud and the government had urged Judge Rakoff to send Dreier to prison for 145 years, apparently calculating that the shady barrister was only slightly less evil that the Prince of Financial Darkness himself. But Rakoff refused, "Mr. Dreier's crimes, despicable though they may be, pale in comparison to Mr. Madoff's," he said.
"What I said to the lawyers who contacted me was that we've come to a very strange place if I'm getting congratulated for 'winning' a 20-year sentence for a 59-year-old white collar offender," Shargel recalled.
Since he was named to the federal bench by President Clinton in 1995, Rakoff has built a judicial resume that includes overturning the federal death penalty (reversed on appeal), thumbing his judicial nose at federal sentencing guidelines and forcing the Pentagon to reveal the names and nationalities of hundreds of detainees held at Guantánamo Bay.
Some of Rakoff's more interesting opinions have come in cases that are less than earth-shattering. In 2005, for example, New York City put the kibosh on a block party in Chelsea because the organizer planned to let artists spray graffiti on mock-ups of subway cars. Mayor Michael Bloomberg argued that such activity would encourage vandals to deface real subway cars with graffiti.
Judge Rakoff disagreed.
"By the same token, presumably, a street performance of 'Hamlet' would be tantamount to encouraging revenge murder," Rakoff wrote. "As for a street performance of 'Oedipus Rex,' don't even think about it."
"He has an extremely droll sense of humor. One might almost call it puckish," said Ron Kuby, the lawyer (and HuffPost blogger) who represented the party-thrower.
Rakoff's strong suit is securities law. He was born in Philadelphia and, after graduating from Swarthmore in 1964, attended Oxford and Harvard Law School. According to friends and colleagues, he arrived in New York City in 1970 with a dual dream: He would work as a lawyer by day and by night write the book for a musical that would take Broadway by storm.
Despite Rakoff's love of lyrics, the law won out. He soon joined the prestigious U.S. Attorney's office in Manhattan, where he worked as a prosecutor for seven years, including two as chief of the securities fraud unit. That paved the way for a career in private practice that made him one of the top securities lawyers in the U.S. (He has written a number of books and more than 100 articles).
"He was a great, great securities litigator. He's forgotten more about securities law than some of the top lawyers in the country have ever known," said Anthony Sabino, a professor of law and business at St. John's University. "His knowledge of securities law is such that if he asks you a question, you'd better have the answer. The SEC and the Bank of America didn't have the answers, and that's why they're in the pickle that they're in."
The bank and the government agency are scheduled to go to trial in Judge Rakoff's courtroom in March. Not surprisingly, given Rakoff's harsh criticism of the $33 million deal, both sides have opted for a jury trial.