Showing posts with label Amicus Brief Regarding SEC v. Citigroup. Show all posts
Showing posts with label Amicus Brief Regarding SEC v. Citigroup. Show all posts

Monday, June 9, 2014

Sunday, February 10, 2013

"Friend of the Court" brief in SEC v Citi submitted. Case heard.

William Michael Cunningham last week submitted a revised "Friend of the Court" brief in a case currently pending before the United States Court of Appeals for the Second Circuit.

The case concerns the rejection, by a Federal Judge, of a settlement agreed to by the United States Securities & Exchange Commission (SEC) and Citigroup Global Markets Inc. (Citigroup), the latter accused of securities fraud.

As a friend to the Court, Mr. Cunningham provides an independent, objective and unbiased view in support of broad public interests. His education and experience have uniquely positioned him to provide objective, independent research and opinions concerning the issues central to the case.

The "Friend of the Court" brief notes that the negative impact of the fraud was $5.5 billion dollars, calculated, using the Fully Adjusted Return® Methodology, as the sum of the loss of all invested funds and the monetary value of societal impacts. The SEC settled the case for $285 million. The fact that the penalty is too small is evidence that the regulator/plaintiff has been captured by the financial services industry. Under regulatory capture, full and automatic deference to Agency decisions is inappropriate, since the Agency cannot make legitimate policy decisions in the public interest. 

The Brief calls for the creation of a special Financial Institution Court of Law. This Court would be responsible for both financial institution and financial institution regulator oversight. The Court would provide flexible oversight that ramps up when needed, becoming active when the number of cases against Wall Street firms exceeds some predetermined number, or when damage due to financial market fraud exceeds some dollar amount.

“Appellate courts ordinarily defer to the agency's expertise and the voluntary agreement of the parties in proposing the settlement” but these are extraordinary times. When industry participants, despite continual Agency enforcement actions, act repeatedly and with impunity in a manner that damages the industry, the country and the global economy, a Court must step in to protect the public. A decision by the (Appeals) Court in favor of the SEC and Citigroup will further weaken this support, to the detriment of market institutions and the public. My economic models continue to show that the global economy remains at risk.

Tuesday, May 15, 2012

SEC v Citi - First response to new briefs

Selected highlights from the Appeals Court Brief filed yesterday by the SEC:

"As one example, the same district judge who rejected the consent judgment here approved a consent judgment in which Worldcom agreed to injunctive relief—and later, a $750 million penalty, one of the largest ever obtained by the Commission—without admitting or denying the fraud allegations in the complaint."

Irrelevant, since they refer to a different time and industry. More importantly, a $750 million dollar fine in 2002 translates into a $962 million dollar fine in 2012. Or a $285 million dollar fine is only $223 million in 2002 dollars.


The SEC notes that "BP resolved charges that it violated the Clean Air Act in connection with the Texas City refinery explosion, which killed 15 people and injured 170, by entering into a consent judgment that ordered it to undertake an array of remedial measures and pay one of the largest civil penalties ever assessed for Clean Air Act violations at an individual facility."

The disaster occurred on  March 23, 2005. Had any Court fully considered the public interest, as the lower Court is attempting to do here, it is likely that BP would not have had the Deepwater Horizon oil spill, "the largest accidental marine oil spill in the history of the petroleum industry."

The SEC's brief also notes that "The district court asked rhetorically how it can “ever be reasonable to impose substantial relief on the basis of mere allegations,” but I suggest the district court was really asking how can it “ever be reasonable to impose substantial relief on the basis of mere allegations,” after a major global financial market crisis caused by recidivist financial institutions using the US dollar's status as global reserve currency to sell fraudulent financial instruments around the world.

The district court did give proper deference to the Commission’s assessments, given the Commission's recent history of not protecting the public interest, given the recidivism noted. The central issue is this: is the SEC “a government actor committed to the protection of the public interest?” The SEC's financial crisis performance suggests the agency has been captured by the industry it regulates. While "the decision to investigate, to prosecute, and to settle is solely an executive function" a district court can examine the investigative, prosecutorial and settlement performance of an agency to determine the competence of an agency in protecting the public interest.

The SEC's brief notes that "The reason is that many, and perhaps most, defendants will not admit to factual allegations because they are concerned about, among other things, the collateral estoppel effect of admissions on parallel private actions." That the SEC is concerned with this at all is evidence that they have been captured by the industry.

The SEC's brief notes that "Without the ability to compromise, the Commission would face a difficult dilemma." The lower Court rejection does not prohibit the SEC from compromising. It hopes to prohibit them from making compromises that are contrary to the public interest.

The SEC notes that "the Commission obtained the injunctive relief it sought in the complaint and monetary relief totaling $285 million, which is more than 80% of what it could have reasonably expected to obtain if it prevailed at trial." I estimate reasonable relief would be in the $3 billion dollar range.

Monday, March 12, 2012

Recent News Citations

Big banks: Too big to behave?
March 12, 2012: 10:28 AM ET

Given the level of repeat offenses at some of the largest financial firms, it's clear that the SEC needs to change its approach. By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance.

Minority banks are struggling, even with bailouts
March 11, 2012. By Beth Healy, The Boston Globe.

OneUnited Bank is facing a painful question: What purpose can a minority institution serve when its own community is turning against it?

That’s the situation the Boston bank, the nation’s largest black-owned bank, finds itself in after threatening to foreclose on Charles Street African Methodist Episcopal Church, one of the most revered black churches in Boston, which, like many borrowers, fell behind on its loans during the recent recession. Community leaders vow to organize a national boycott of the bank if it fails to renegotiate the church’s loans by Thursday.

Thursday, January 26, 2012

"Friend of the Court" brief in SEC vs. Citigroup (2nd Cir Ct of Ap)

William Michael Cunningham submitted a "Friend of the Court" brief in a case currently pending before the United States Court of Appeals for the Second Circuit.

The case concerns the rejection, by a Federal Judge, of a settlement agreed to by the United States Securities & Exchange Commission (SEC) and Citigroup Global Markets Inc. (Citigroup), the latter accused of securities fraud.

As a friend to the Court, Mr. Cunningham seeks to provide an independent, objective and unbiased view in support of broad public interests. His education and experience have uniquely positioned him to provide objective, independent research and opinions concerning the issues central to the case.

The "Friend of the Court" brief concludes by noting that markets have become less stable. Faulty regulatory practices and collusion (too big to fail, etc.) have moved regulators and lawmakers..in the direction of supporting suppliers to the financial service marketplace. A decision by the (Appeals) Court in favor of the SEC and Citigroup will further weaken this support, to the detriment of market institutions and the public. My economic models show the global economy remains at risk.

http://prlog.org/11782028