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November 28, 2011


Steven - The full text of the ruling. It's deliciously scathing in calling out the SEC on it's wrist slapping.

Lynn Rees

Hello Tom,

Interesting post, as always. I understand your frustration in the fact that Wall Street firms are typically able to settle SEC allegations with a financial penalty (sometimes paltry when compared to the firm's size) and without admitting guilt. And, Judge Rakoff's decision, at first glance, would appear to be a step in the right direction for finally bringing some justice to Wall Street shenanigans.

However, I think a closer inspection might cause one to pause. If the choice for firms is to admit guilt as part of a settlement, or go to court and fight, I would think that wouldn't be much of a choice at all. Firms will go to court and take their chances, regardless of what the potential financial consequences might be. The reason is because by admitting guilt, the firm is not only further damaging their reputation (thereby, affecting future revenue), but also opening up the floodgates for future litigation. Faced with such a choice, it would seem that the firm would choose going to court every time.

So, in the long run, Judge Rakoff's decion will have the following effects. First, an already understaffed SEC will be less able to pursue violations because they will need more resources to fight in court the ones they find. Second, an already overburdened court system will be further weighed down.


Very interesting article, thank you.

Independent Accountant

Bravo Rakoff. I've said for over 30 years that the SEC's enforcement division is a sham. It should end the practice of letting defendants neither admit nor deny guilt. If the SEC only brings 10% as many cases a year and takes every one to trial, investors will be better off.


Bob Abidor

Corporations have been viewing SEC enforcement actions like class action litigation: come up with a sum to make plaintiffs' counsel happy (here substitute SEC) then propose the minimum amount to pay to the class. Never admit actual responsibility, just pay the sum as a cost of doing business.

The SEC has a far greater responsibility to the investing public than does class action counsel. When the two roles become confused, we have the mess we have now. Unless and until appealled Judge Rakoff's decision will have limited legal effect beyond his courtroom, hopefully a well-reasoned decision by a Judge of the most prominent court handling financial matters (Southern Distrcit of NY)will carry some weight with the SEC. Whether the wishy-washy Obama administration will push to support this effort is a serious question.

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