Last fall the SEC settled a massive derivatives fraud case with Citigroup for a puny amount that was so small that it was literally irrelevant to Citigroup. It was so indefensibly egregious that Better Markets filed papers in the court seeking to stop the sweetheart settlement, which are available here and here.
But, per SEC practice of letting corporations and their senior executives off, it did charge a single mid-level employee for failure to disclose Citigroup’s fraud. We viewed this as an abuse of government power. The might and power of the US government, be it the SEC or others, should not be used to crush mid-level individuals while letting everyone else off.
Not only is it wrong, it rewards and incentivizes law-breaking and crime by Wall Street and corporate America more broadly. Wall Street, as we’ve shown and as is obvious to anyone reading the papers, is a high crime area, but the SEC simply refuses to be tough on corporations or their executives. Instead, it scapegoats minnows while letting the whales get away.
Today the jury in the SEC’s case against the mid-level employee rejected the SEC’s case. Many will speculate why it did so, but we have little doubt that the jury wasn’t about to hold a single relatively junior employee liable for Citigroup’s conduct, which involved dozens if not hundreds of other employees, officers and executives.
Here’s our statement on the jury’s verdict:
Jury’s Verdict Shows SEC Should Stop Scapegoating Junior Employees and Go After Corporations and Executives Who Break the Law
Washington DC, July 31st, 2012- “The message from this jury’s verdict is clear: until the SEC starts bringing cases against the real corporate wrongdoers and their executives, juries aren’t going to allow the SEC to scapegoat junior employees,” said Dennis Kelleher, President and CEO of Better Markets, an organization that promotes the public interest in the financial markets.
“The SEC charged a single mid-level employee for all of Citigroup’s derivatives misconduct leading up to the financial crisis. It did not charge any of the dozens if not hundreds of other involved employees, officers and executives. The SEC also let the corporation, Citigroup, off by settling with it for a puny penalty that was so small as to be irrelevant to Citigroup,” said Mr. Kelleher.
“The jury obviously saw the unfairness in this highly selective enforcement of the law. This shows that the SEC’s practice of letting corporations and executives off without any meaningful penalties is fundamentally flawed. Mr. Stoker was one of dozens of Citigroup employees packaging and selling the $1 billion derivative, which Citigroup itself shorted and bet against. The SEC’s practice of chasing minnows while letting the whales go must change if Wall Street’s pattern of breaking the law is to be stopped,” said Mr. Kelleher.
Better Markets objected to the paltry sweetheart settlement between the SEC and Citigroup in the Federal District Court last fall and will be filing its objections in the pending appeal of that settlement shortly.