Does Wall Street Believe that Breaking the Law is Just a ‘Part of Doing Business?’


Whether from “outright bribery and the hope of future job offers” or “ideological conformity and the desire for good relationships and a peaceful life,” the Securities and Exchange Commission is a “captured” agency controlled by Wall Street. That is why the SEC allows the likes of Citigroup to sell its clients a product that Citigroup “built-to-fail” and bet against, in exchange for Citigroup paying a modest fine and promising not to violate the securities laws again (which everyone knows the SEC has no intention of enforcing) ? all without admitting that it did anything wrong. The big banks continue to break the law because of the low probability of getting caught plus the inconsequential consequences of getting caught, and that is why we will face another financial crisis in the near future. That is the takeaway from James Kwak’s article in The Atlantic entitled “Too Big to Stop: Why Big Banks Keep Getting Away With Breaking the Law.”

So far, the only one to take a stand against this corruption is Judge Jed S. Rakoff, who has refused to approve the above-referenced settlement between the SEC and Citigroup. Judge Rakoff reasonably noted that the SEC’s longstanding policy of “no admissions” settlements does not provide a factual basis for him to do what the law requires, which is to determine whether the settlement is in the public interest. The SEC apparently believes it can come back to Judge Rakoff without fixing this problem by simply raising the amount of the fine. If that occurs, we’ll just have to see whether Judge Rakoff holds firm.

As Kwak observes, these “cost of doing business” settlements have no deterrent value and truly invite Wall Street to continue its reckless and unlawful conduct.

With a captive SEC, the only possible deterrent is private litigation. But when private suits and arbitrations are filed, the SEC’s “no admissions” policy allows the defendant to deny the very findings of fact that it “consented to” (without admitting to) in the settlements. Even worse, in arbitrations where customers try to introduce the regulator’s findings, the bank tries to keep them from being considered at all. Wall Street lawyers mount their high horse and pontificate: “Throughout the history of our nation’s jurisprudence, settlement communications and agreements have always been deemed by courts and arbitration panels to be confidential and inadmissible in subsequent legal proceedings.”

In addition, when private litigants seek to obtain the incriminating emails and other documents that the bank previously produced to regulators, the bank invariably objects to producing them. Arbitrators are told that discovery in arbitration is limited, and the claimant is just on a “fishing expedition.” Some arbitrators fall for this stonewalling and some don’t.

Until all judges and arbitrators start taking the truth-seeking purpose of the proceedings they oversee more seriously, Wall Street will continue to drive away investors who believe the financial markets are rigged in favor of the house.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.