11/30/2011 05:14 pm ET | Updated Jan 30, 2012

The 99 Percent Win One Against Citibank

The 99 percent were not invited to this court case, but they won anyway. The Securities and Exchange Commission and Citibank mistook Federal Judge Jed S. Rakoff for a robo-signer to their toothless fraud settlement deal. Big mistake.

Ordinarily, it would have been just another case of the rules being different for the financial giants than for the rest of us. The SEC had accused Citibank of selling investors mortgage-backed bonds that the bank secretly knew were toxic, making Citibank a profit of $160 million and costing those investor victims $700 million of their life savings. The SEC proposed a sweetheart settlement of $285 million, Citibank would not have to admit to any wrongdoing, and the facts of the case would be kept secret.

It was a classic example of the 1% elite living by rules that would have landed the other 99% in jail. Imagine if a gangster mugged an old lady and stole her life savings. Now imagine that the gangster was arrested, hauled into court and the District Attorney asked the judge to approve the following settlement: the gangster returns just 40% of the old lady's money, he does not have to admit to any wrongdoing, and the facts of the case would be kept secret. Do you think any real-life judge would approve this kind of settlement? I don't, but the SEC and Citibank apparently did.

Judge Rakoff never marched with the Occupy Wall Street demonstrators. But he put into practice their philosophy of one set of rules for everyone, and he threw the SEC-Citibank settlement into the trash.

He declared that an admission of guilt or innocence was a matter of great public interest. He declared that the facts of the case should be available to the public, not to mention to the judge ruling on the case. And he poured scorn on the SEC's wrist slapping punishment of Citibank, calling it part of "a long-standing policy, hallowed by history but not by reason." Ouch!

The SEC and Citibank reacted like lovers interrupted on their honeymoon. Citibank claimed that pleading guilty would open it up to civil lawsuits from angry investors. (Citi should've thought of that before it sold the toxic bonds.) The SEC claimed that it didn't have the resources to chase all the incidents of wrongdoing, so sweetheart deals were the only answer. (What about making such an example of a couple of banks so that the other financial institutions would think twice before defrauding the public so brazenly?)

I have no idea if other federal judges will follow Judge Rakoff's example of demanding one set of rules for everyone, including the 1 percent elite. Still, just this once, (to paraphrase Martin Luther King Jr.), the other 99 percent of us have been to the mountaintop and we've seen the promised land.

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