Jed Rakoff has been called many things: a maverick, a prosecutor, a hero, and acerbic. As a judge on cases involving high finance, his rulings have often been described as blunt and sometimes wry. When asked if he's anti-Wall Street, he once suggested that some prosecutors fear he's pro-Wall Street.
You can describe the U.S. District Judge many ways, but there's one adjective that's been taken off the table: alone.
Rakoff has garnered public attention in the past year for taking a stand against insufficient settlements between government prosecutors and Wall Street. It all started with a case against Bank of America for misleading shareholders about the 2008 purchase of Merrill Lynch. That was settled for $150 million after Rakoff initially refused to sign off on a $33 million deal. He did so begrudgingly, referring to the final offering as "half-baked justice."
Now, two more judges have started to call out bank settlements that don't appear to serve the public interest. They seem to share Rakoff's sharp judgement -- and tongue.
"Why would I find this fair and reasonable?" asked Judge Ellen Segal Huvelle, killing a deal that the SEC had struck with Citigroup this month. She added that she was "baffled" and accused the parties of expecting a "rubber stamp" on the $75 million proposal related to subprime loans.
The same week, Judge Emmet G. Sullivan signed off on a $298 million settlement involving Barclays. But he didn't seem happy about it.
"You don't believe the government has put on the kid gloves here?"
Prosecutors denied it, but Sullivan described their offering as a "sweetheart deal" and suggested that the public might see it as "a free ride." None of the Barclays employees faced punishment, just the corporation -- and ultimately the shareholders.
The Wall Street Journal notes that these cases share more than defendants who accepted bailout money:
The common thread of the rejected settlements seems to be a request for "more serious sanctions against individual managers," said Robert Heim, a former SEC assistant regional director. "Right now, it's numbers negotiated between prosecutors and the accused. Judges are concerned the penalties are too small" and that shareholders are burned twice, first by the wrongdoing and second by the fines.
Think of the alleged Wall Street miscreants of the last decade: Merrill Lynch's Henry Blodget, Credit Suisse's Frank Quattrone, Bear Stearns's Ralph Cioffi and Matthew Tanin, Bank of America's Theodore Siphol, the New York Stock Exchange's Dick Grasso, Morgan Stanley's Mary Meeker, and Citi's Jack Grubman--the list goes on.
None of those individuals were convicted.
That pattern has been a big concern for the three judges, who the New York Times points out were all appointed by President Bill Clinton. The Times noted the frustration of Sullivan in the Barclays case, after asking the lead prosecutor, "You agree there must have been some human being who violated U.S. laws?"
He proceeded to ask that same question in a dozen different ways, growing increasingly exasperated with the answers, until he finally interrupted the government lawyer to ask, "Can I just share a thought with you?"
"You know what?" he asked. "If other banks saw that the government was being rough and tough with banks and requiring banking officials to stand before federal judges and enter pleas of guilty, that might be a powerful deterrent to this type of conduct."
If putting a banking official on trial would please the court, it may happen soon in Rakoff's chambers. That's a location Bank of America has been trying to avoid since last year's ruling. Now, two of the company's former executives, ex-CEO Kenneth Lewis and ex-CFO Joe Price, are facing fraud charges connected to their personal involvement in the same Merrill Lynch deal. This time, it's not federal prosecutors pressing charges but New York Attorney General Andrew Cuomo. Defense lawyers are asking for the case to be thrown out.
But baring a dismissal from Rakoff, an individual banker could finally have his own day in court.