More Wall Street And Washington Incest

The other day I saluted Judge Jed Rakoff for exposing the embedded hypocrisy and contrivance in the $33 million settlement paid by Bank of America (BAC) to the SEC. Why don’t we have more judges with the courage and integrity to expose the incestuous nature of the Wall Street-Washington relationship?

Great question.

As an example of this incest, Bloomberg’s Jonathan Weil exposes the pathetic performance of Judge Robert Chatigny, from the U.S. District Court in Hartford, in his adjudication of a fraudulent accounting case brought by the SEC against General Electric (GE). Weil writes, GE’s Fraud Case Could Use the Judge Gone Wild:

Finally a judge has dared say no to the once-venerable Securities and Exchange Commission and one of its cozy corporate settlements.

If that wasn’t novel enough, this fellow first had the nerve to ask the SEC a bunch of questions about the way it does its business. Turns out, he got a lot of embarrassing answers about the government’s investigation of Bank of America Corp that the SEC hadn’t planned to tell the rest of us about.

This jurist gone wild, now a folk hero of sorts, is U.S. District Judge Jed Rakoff. But before we go further, let me tell you a quick story about another judge, this one at the U.S. District Court in Hartford, Connecticut.

His name is Robert Chatigny. On Aug. 4, he was assigned a settled complaint the SEC filed that day against General Electric Co. Under the deal, GE agreed to pay $50 million of its shareholders’ money to resolve the agency’s claims that it had committed accounting fraud. The SEC didn’t name any actual people as defendants. We don’t know if it ever will. Chatigny approved the agreement six days later, with no hearing and no questions asked. GE neither admitted nor denied the allegations.

That’s how SEC cases usually go. And just think how much more we the public - and certainly GE shareholders - deserve to know about this supposed fraud. Who at the company committed it? Why hasn’t the SEC sued them? Doesn’t the SEC know who they are? Why aren’t they paying fines out of their own pockets? And why wasn’t Chatigny asking these kinds of questions?

I tried calling Chatigny yesterday to ask him. His law clerk said he couldn’t be reached for comment.

Why do firms such as GE or BofA commit these frauds or promote shoddy business practices? Because it is worth it. How so? The returns generated far exceed the potential fines or penalties imposed, so the practices continue.

The fact that Judge Chatigny or those of his ilk do not truly hold companies and individuals to account gives a quasi-green light for firms to continue to push the envelope. Who pays? Shareholders and the public at large. What are the real costs? The erosion of integrity and principle in the pursuit of profit. Who benefits? Individuals within these corporations and those in Washington who conveniently look the other way as these frauds play out.

I commend Jonathan Weil for once again shedding light into another dark, dank, dismal corner of American finance. We need more judges like Jed Rakoff and we need more journalists like Jonathan Weil.

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