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I Come to Bury Judge Rakoff, Not to Praise Him

Posted by Larry Doyle on April 12, 2010 9:11 AM |

U.S. District Judge Jed Rakoff

America loves a hero. Those who go boldly into the dark, defying death, and willing to sacrifice themselves for the well being of their brethren are truly special. Why are so many Americans enraged at the power structure in Washington? For the very simple reason that Americans see few – if any – heroes amongst our elected public servants.

Do we find any heroes on Wall Street? There are many great, heroic citizens in every line of work, including Wall Street, who work tirelessly to fend for their families. These people are heroes, but not on a national level.

Who are our national heroes at this time? Who is truly willing to call out the embedded incestuous power structure that has corrupted and continues to corrupt our society? I will nominate Simon Johnson and James Kwak, co-authors of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, for serious consideration as national heroes. Why? Johnson and Kwak properly frame the critical debate facing America today. This debate focuses on the fact that the incestuous relationship between our political and financial forces is killing America. Unless and until that incestuous relationship is exposed and unwound, our nation faces grave threats.

Who else might rise to the level of national hero? If we were to read the Los Angeles Times today, we may think that Judge Jed Rakoff is worthy of serious heroic consideration as well. The LA Times writes, Judge Jed Rakoff Taps Into Nation’s Outrage Over Economic Crisis:

The economic crisis has brought out the populist in many politicians and others. Among the more unlikely ones may be a silver-bearded federal judge who has wasted no chance to tell the country’s biggest banks what he thinks about how they operate.

When Bank of America Corp. was trying to settle civil charges over its conduct in its purchase of Merrill Lynch, U.S. District Judge Jed Rakoff wrote that the bank’s executives had led what “could have been a bank-destroying disaster if the U.S. taxpayers had not saved the day.”

Addressing how the firm pays its top people, the judge spoke in February of “the incredibly bloated compensation of too many executives in too many American companies.”

In another case, Rakoff called JPMorgan Chase & Co.’s handling of a major client improper at the very least, “if not a downright sham.”

He condemned not only big banks but also their regulators, saying the Securities and Exchange Commission’s enforcement in the Bank of America case did “not comport with the most elementary notions of justice and morality.”

“He has tapped into some of the national and populist outrage that has followed the economic meltdown,” said Anthony Barkow, executive director of the Center on the Administration of Criminal Law at New York University. “He’s made an intellectual and legal case for what a lot of people are thinking based on their own common sense.”

Rakoff has even become a reference point in the legal world. In chastising the SEC last week in the online magazine Slate, Eliot Spitzer, who as New York attorney general took on Wall Street, pointed to Rakoff’s rulings. When another judge criticized the SEC recently, a Wall Street Journal blogger said that judge had “pulled a Rakoff.”

Rakoff is finally a jurist who is standing up for Americans against the establishment, right? Clearly, this is what America needs more of, correct? While I will grant that Rakoff has wielded a heavy hammer in selected judicial rulings, in the most important case facing him throughout this crisis, he whiffed. In so doing, Rakoff supported the further entrenchment of the Wall Street-Washington incest that is crippling our society.

Regular readers of Sense on Cents know I am referring to Rakoff’s ruling on behalf of the Financial Industry Regulatory Authority vs Standard Investment Chartered. In this case, Rakoff ruled that FINRA was able to operate with absolute immunity in the merger of the NASD (National Association of Securities Dealers) and NYSE Regulation to form FINRA itself. For those not familiar, FINRA is a non-profit which serves as Wall Street’s self-regulator.

Allegations made by plaintiff’s attorneys explicitly laid out that then FINRA head and current SEC Chair Mary Schapiro lied in the proxy statement used for this merger. That lie constituted a misappropriation of $175-350 million dollars.

Judge Rakoff hero? No, I don’t think so. His ruling, which is subject to appeal, is based on a technical view — not on the merits of the case. As highlighted by Barron’s Jim McTague in his article Finra, First Heal Thyself:

Several broker-dealers subsequently sued Finra, alleging the officers had lied and subsequently had used some of the money to give themselves exorbitant pay raises. Mary Schapiro, who led Finra then, received $7.3 million in salary and accumulated benefits when she left; now chairman of the SEC, Schapiro makes $158,500 a year. This month, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York dismissed the lawsuits, not on their merits, but because under the law, Finra and its officers enjoy “absolute immunity” from private actions challenging their official conduct as regulators. The judge’s action startled the investment-advisory community.

Rakoff may be tough at times, but in this case, the one that would have blown the cover off the Wall-Street Washington incest, he struck out!! Rakoff does not have the balls to take on lying in a proxy statement in what was a financial transaction not a regulatory action. In so doing, he gets a speedy induction into the Sense on Cents Hall of Shame!!


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