Jed Rakoff

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Remember the name.

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My hero, Judge Jed Rakoff
By Jim Pavia
August 23, 2009
Federal Judge Jed Rakoff, who challenged the $33 million settlement worked out between the Securities and Exchange Commission and Bank of America Corp., is my new hero.

Instead of doing what industry observers ex-pected and rubber-stamping the deal, he delayed his decision and, in doing so, raised questions about the SEC's resolution policies.


In its settlement with BofA, the SEC broke from its tradition of seeking to place the primary penalty on individuals responsible for disclosure violations. In the BofA agreement, the bank is settling charges that it failed to disclose to shareholders that Merrill Lynch & Co. Inc. had agreed to pay up to $5.8 billion in bonuses just before its acquisition.


Mr. Rakoff said that he wants to establish that the payment was truly in the public's interests, as it allowed BofA to avoid either admitting or denying the allegations.


Following the hearing, he said: “The settlement seems to be lacking in transparency. Don't I need to know what the truth is to make a determination?”


Both sides were ordered to reconvene today to submit new papers. The judge set Sept. 9 as the date on which to hear their responses.


Essentially, Mr. Rakoff is challenging the SEC to go after the individuals who did wrong, not a faceless company.


During a June congressional appearance, SEC Chairman Mary Schapiro said: “The SEC needs to send a clear message that corporate wrongdoing will not be tolerated, and penalties for securities violations will be stiff.”


But corporations don't commit wrongdoing; individuals do. So in order to prove that Ms. Schapiro means business, she must settle not only with corporations but also with the individuals at those companies responsible for the actions.


The SEC complaint accused BofA of misleading its shareholders. But who at the company did the misleading?


Instead of digging in to find out how the bonus decisions were made and by whom, the SEC cut a deal in which BofA got off with a chump change fine. To put the fine in perspective, its $33 million price tag is less than any one bonus received by the Merrill executives last year.


To his credit, Mr. Rakoff asked what any of us would have asked had we been in his place: Why, given the “serious questions” raised in its complaint, hadn't the SEC gone after more facts? And if BofA of Charlotte, N.C., and Merrill of New York conspired to lie to shareholders about bonuses that had been agreed to when the merger was signed, then why didn't the SEC try to figure out exactly who lied?


“You filed a rather uninformative, bare-bones complaint,” Mr. Rakoff told SEC lead lawyer David Rosenfeld, who reportedly replied meekly that the commission hadn't made any allegations against specific individuals.


The response didn't satisfy Mr. Rakoff.


“I would be less than candid if I didn't express my continued misgivings about this settlement at this stage,” he told the lawyers for both sides. “When this settlement first came to me, it seemed to be lacking, for lack of a better word, transparency.”


Mr. Rakoff went on to explain that accepting the settlement “would leave uncertain the truth of the very serious allegations made” by the SEC and whether any of the bonus money was “derived directly or indirectly” from the billions of dollars that BofA received from the government.


“The judge seems to have the feeling the SEC pulled a punch, and that's why he wants to get down to the facts of who knew what and when,” Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, said in a published report. “This comes as the SEC tries to recover some of its damaged reputation in the enforcement area. They're not getting a gold star for this one.”


The judge has sounded an alarm. Let's hope the SEC heeds his warning and that members of Congress are paying attention.


“What the judge is trying to get at is, was there actual fraud here?” Mr. Hurley said. “The risks are, they go back to their corners, and the SEC really does attempt to prove wrongdoing.”


Mr. Rakoff is putting the SEC's feet to the fire; let's hope it can take the heat.


Jim Pavia is the editor of InvestmentNews.

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Everyone's favorite judge is back in the spotlight!

U.S. District Judge Jed Rakoff was assigned the SEC case against Galleon's Raj Rajaratnam and his co-defendants, the Wall Street Journal's Law Blog reports.

Rakoff received a lot of press attention this summer and fall when he refused to approve the proposed agreed judgment between Bank of America and the SEC.

The SEC lawyers are probably pleased to be appearing in front of Rakoff in a case where they seem to have pulled out all the stops, filing charges after a more than two-year, wiretapping included, investigation.

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Galleon exec draws judge Rakoff
By MARK DeCAMBRE

Last Updated: 3:44 AM, October 21, 2009

Posted: 12:55 AM, October 21, 2009

The high-profile insider-trading case against hedge-fund king Raj Rajaratnam of Galleon Group is getting a high-profile judge who's earned the nickname on Wall Street of Judge Dread.

US District Court Judge Jed Rakoff is expected to oversee the Securities and Exchange Commission's case against the billionaire hedgie, who was charged Friday with running a $20 million insider-trading scheme.

On Wall Street, Rakoff has gained notoriety for nixing a $33 million settlement between the SEC and Bank of America over charges the bank hid billions in losses and bonus payments from shareholders in order to push through BofA's merger with Merrill Lynch.

Rakoff gained instant fame when he blasted both the SEC and the bank for what he called a "trivial penalty for a false statement that materially infected a multi-billion-dollar merger."

The hard-hitting judge is known for being a legal maverick with a firm hand when it comes to tackling financial malfeasance, and has earned a reputation for forcing Wall Street executives to be accountable for their actions.

Arrested Friday, Rajaratnam along with a number of insiders was charged with garnering private information to bet on publicly traded technology and health care companies, lining his pockets with millions.

The dough from his alleged insider trading scam placed Rajaratnam as one of the richest men in the world with a net worth of about $1.3 billion, according to Forbes.

He's been released on bail after posting $100 million.

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http://www.huffingtonpost.com/daniel..._b_335417.html

If New York was mother to many of the evildoers in the financial disaster that sent the economy into a tailspin, it's also home to an avenging angel for the millions of ordinary Americans who lost billions of dollars in the meltdown.

The guy with the wings and the sword also wears robes: He's federal Judge Jed Rakoff. The shock waves from Rakoff's scathing denunciation last month of a proposed settlement between the Securities and Exchange Commission and the Bank of America are still rippling through Wall Street and Washington.

Bank of America CEO Ken Lewis is on his way out, and New York Attorney General Andrew Cuomo is pressing an investigation into the deal in which the bank purchased ailing Merrill Lynch last December without telling its shareholders that executives of the tottering brokerage were paid $3.6 billion in bonuses shortly before the takeover was announced. A congressional panel is also probing the deal.

The common-sense wisdom of Rakoff's ruling resonated with a public infuriated with billion-dollar bonuses and bailouts. The SEC signed off on an agreement in which the bank agreed to pay $33 million (in shareholder money) for concealing the bonus payments from the shareholders. In effect, the victims were being punished, a topsy-turvy outcome fairly typical of the SEC's handling of wrongdoing by large corporations in cases like these.

"Oscar Wilde once famously said that a cynic is someone 'who knows the price of everything and the value of nothing,'" Rakoff wrote.

The proposed consent judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.

Rakoff's ruling may well mark the dawn of a new era in corporate accountability, since the judge has pressed for the names of the bank executives responsible for hiding the bonus payments.

Read more at: http://www.huffingtonpost.com/daniel..._b_335417.html

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By Rachelle Younglai

WASHINGTON, Oct 19 (Reuters) - In the office of Wall Street's top cop hang a courtroom sketch and a framed newspaper article from his biggest case, when he sent the villain away for life.

Now Robert Khuzami, who convicted the 'Blind Sheik' and his ring of bomb plotters in that trial, is targeting a different kind of villain -- corporate executives, traders and fund managers who dare to break securities laws.

About six months into his job as the U.S. Securities and Exchange Commission's enforcement director, Khuzami, who was handpicked by SEC Chairman Mary Schapiro, has shaken the agency to its core with reforms designed to ensure it does not miss the next Bernard Madoff.

Last Friday, the SEC brought civil charges against billionaire Raj Rajaratnam and others for what investigators call the largest hedge fund insider trading scheme ever.

To some, the former federal prosecutor has revolutionized SEC enforcement by scrapping middle managers, giving lawyers more subpoena power, and creating squads to focus on areas such as complex financial products and municipal securities.

'Aggressive is an understatement,' said Cam Funkhouser, senior vice president of market regulation at the Financial Industry Regulatory Authority, who has known Khuzami for a decade.

Yet to others, Khuzami's reforms have created uncertainty within a division lashed by Congress and the SEC's own inspector general for missing Madoff's $65 billion fraud.

Also watching closely are the corporate titans and brokers who were more loosely overseen by a more business-friendly SEC during the latter years of the Bush administration.

Khuzami says he is listening to everybody.

'I don't enjoy the criticism, but it is important that we continue to listen and not get closed off,' the 53-year-old Khuzami said in a Reuters interview early in October.


NEW AGGRESSIVENESS

Outsiders say the SEC under Schapiro and Khuzami is moving quickly on high-profile enforcement cases to help the agency regain its luster.

Most recently, there is the Rajaratnam case, in which the U.S. Attorney's office in New York, where Khuzami worked for 11 years and led its securities fraud unit, brought related criminal charges.

In June, the SEC filed civil fraud charges against Angelo Mozilo, who founded the onetime mortgage giant Countrywide Financial Corp.

It is also appealing a dismissal of insider trading charges against Dallas Mavericks basketball team owner Mark Cuban.

'The SEC is moving more quickly, it's trying to be more creative,' said Mark Schonfeld, a partner at Gibson Dunn & Crutcher LLP and former director of the SEC's New York office. 'But the jury is still out on how his ideas will play out.'

Some say the SEC is not as aggressive as it should be.

Last month, U.S. District Judge Jed Rakoff pilloried the agency for being too lenient on Bank of America Corp over what it had not disclosed about its purchase of Merrill Lynch & Co. The two sides may go to trial by March.

His former co-workers say Khuzami can take the heat.

'He has thick enough skin,' said Mary Jo White, a partner at Debevoise & Plimpton LLP in New York, who was Khuzami's boss as U.S. Attorney for the Southern District of New York. 'When you are in the Southern District, you are really quite in the spotlight. He did not let it get to his head.'

Khuzami joined the SEC from Deutsche Bank AG, where he had been general counsel for the Americas.

As Congress and investors wait impatiently for whether the SEC will discipline anyone for fumbling the Madoff case, Khuzami appears philosophical about criticism of the agency.

'Recent events and scrutiny have combined to make the division and the agency probably much more receptive to self-assessment and considering different and better ways to do its work,' he said.


NO TALENT?

Khuzami traces his decision to become a lawyer to having been mesmerized as a teenager by the Watergate investigation that forced U.S. President Richard Nixon to resign in 1974.

'Even though it was the lawyers committing most of the misconduct, it was also the lawyers that were there to vindicate the process and the U.S. Constitution,' he said.

Khuzami says he learned the value of hard work from his father, a professional ballroom dancer who never went to high school. His mother was also a ballroom dancer, while his brother is a band percussionist and his sister, a muralist.

'I never had any talent,' Khuzami joked. 'I toyed with going to culinary school.'

A graduate of the University of Rochester, Khuzami took some time off to paint houses and work at a bar before earning a law degree from Boston University.

Khuzami's most famous success as a prosecutor was the 1995 conviction of 'Blind Sheik' Omar Abdel-Rahman.

Ten were convicted for conspiring to blow up the United Nations building and other New York City landmarks, following the 1993 bombing of the World Trade Center.

One wall in Khuzami's fifth-floor office displays a framed article and a courtroom artist's sketch from the trial. Khuzami said his wife jokes that he decorates his office with more pictures of terrorists than of her.

(Additional reporting by Jonathan Stempel in New York; Editing by Julie Vorman, Gary Hill) Keywords: SEC/KHUZAMI

(rachelle.younglai@thomsonreuters.com; +1 202 898 8411)

[Ron Thorne]

Remember the name.

Who could we forget? Have you said it in reverse?

Assuming that it's pronounced Jed RACK-off ...

[Gordon B]

Who could we forget? Have you said it in reverse?

Assuming that it's pronounced Jed RACK-off ...

Better Rac than Mad.

[baksheesh]

Jed Rakoff seems like a thoroughly sterling fellow, a kind that is all too rare these days )or indeed ever?) The 'sheesh applauds his integrity and principles and fervently expresses the hope that there are many more men (and women) out there like him, who have just been waiting for an example such as his, to take heart from, and take action in a similar fashion, by standing up and saying "Now, wait just a minute Mr. Lawyer/big business patsy - What the hell is going on here? And do you expect me to fall for it/acquiesce mildly like all the other times i've done so in the past/other people holding high positions in the political/judiciary system?"

Alas, the 'sheesh thinks not.