Federal Judge Jed S. Rakoff did investors a great service today by rejecting the $285 million settlement announced between the SEC and Citigroup a month ago. Without his intervention, there's about zero chance investors and the public at large will ever find out what really took place in the horse-trading between Citigroup and the SEC. I know this from having been in the unique and unusual position of having sued the SEC for failure to comply with the Freedom of Information Act (See Gavin vs SEC, Civil No. 04-4522 PAM/RLE).
The SEC's public statements today on the Citigroup case are valid, but only to a point. Like any law enforcement entity, the SEC has to play the prosecutorial hand the best that it can. I get that part. The SEC's claims fail, however, when contrasted against an agency that otherwise fought vigorously against us regarding what really takes place in its investigations (even well after they are finished).
When it comes to transparency, in my experience the SEC fights dirty, the SEC fights unfair. Even after repeated written scoldings of the SEC by Federal Judge Paul Magnuson in his rulings on the case, we are still unable to obtain meaningful documents on what really takes place in SEC investigations.
Now don't get me wrong, as I'm generally a big defender of the SEC. I believe investors - and politician toadies looking for a free swipe at someone - are too quick to bash the hard working people of the SEC. The SEC doesn't always get it right, for sure. In the main, I've found the SEC does far more to protect investors that most people realize or give credit for. It's just that they are a bit ... well, let's just say the SEC (like most government agencies) is "transparency challenged."
That's why I was so thrilled to see Federal Judge Jed S. Rakoff reject the latest in a series of bogus settlements where someone coughs up a bunch of money ($285 million in this case) while neither admitting nor denying wrongdoing. If this settlement went though, all hope of investors ever knowing what really happened would be gone.
So the DI Guy sings out a big fat "Three cheers for Judge Rakoff!" His efforts may go far in bringing greater transparency to capital markets. Investors should be grateful.