US judges sound off on bank settlements
Washington, Aug. 24: Everything was rolling along traditional lines. A bank broke the rules. The government found out. The company agreed to pay a fine and improve its behaviour. And then the judge assigned to approve the deal blew his top.
In a scene that is becoming increasingly common, Judge Emmet G. Sullivan of Federal District Court chewed out federal prosecutors at a hearing in Washington last week for a proposed settlement with Barclays.
“Why isn’t the government getting tough with banks?” he asked.
Just one day earlier in the same courthouse, Judge Ellen Segal Huvelle refused to sign a settlement between the government and Citigroup, demanding, “Why would I find this fair and reasonable?” She ordered government lawyers to return with answers next month.
The scoldings from the bench are a striking departure from a long tradition of judicial deference to settlements formulated by federal agencies, reflecting broad disenchantment not just with Wall Street, but with its government overseers.
It is a pattern that began last year, when Judge Jed S. Rakoff of Federal District Court in Manhattan denounced the Securities and Exchange Commission for going easy on Bank of America, which the agency had accused of misleading its shareholders.
“The courts are staking out a role that frankly we seem to need,” said Ms Jill E. Fisch, a law professor at the University of Pennsylvania. “They are standing in for the general public, the public interest, and demanding more” from regulators.
The immediate impact, however, has varied. Courts have limited power over settlements. Judge Rakoff persuaded the SEC to punish Bank of America with a larger fine, but Judge Sullivan gave grudging approval last week to the deal between the Justice department and Barclays after airing his concerns for a second day.
Experts also disagree about the long-term consequences. However, Professor Fisch, expect regulators to seek more punitive settlements. Others said that agencies instead would favor lenient penalties that do not require judicial review.
Mr M. Todd Henderson, a law professor at the University of Chicago, said the impact would be determined by the public’s reaction. “I think it’s a public relations stunt more than anything else,” Professor Henderson said.
“The court is trying to make it public that the government may be cutting cozy deals, because it is the public that ultimately controls the executive branch,” which includes the justice department and the SEC.
Litigants are free to settle cases on agreed terms, but the law grants judges a narrow mandate in some cases to reject settlements that if they do not serve the public interest. In the cases at hand, the judges expressed concern that the government was claiming victory without holding companies properly accountable.
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