The potential impact of Rakoff’s stand goes beyond the financial arena to other industries and regulators that rely on negotiated settlements.
“This is Jed Rakoff against the world,” said Joel Seligman, a scholar of securities law.
The dispute seemed to take on a more personal edge over the holidays, when Rakoff accused the SEC of blindsiding him during legal maneuvers. And the battle lines became sharper this month when the Business Roundtable, a major corporate lobby, weighed in on the side of the SEC in its quest to see Rakoff’s ruling in the Citigroup case overturned.
The judge’s fans — and how many judges have fans? — see him as the rare authority trying to impose Wall Street penalties that fit the offense. Rakoff for president, some say.
Critics — some with a stake in business as usual — see him as a headline-chaser who could end up undermining his own agenda by forcing the SEC to actually win its cases.
“Novel” and “potentially dangerous,” the Business Roundtable said of his position.
Largely lost in the din are deeper truths about the man who, for better or worse, could single-handedly force a revolution in the way the government polices Corporate America.
First, far from being an outsider to the world of white-collar enforcement, Rakoff, 68, is part of an old boys’ (and girls’) network that dominates Wall Street justice.
Earlier in his career, as a Justice Department prosecutor and then a white-collar defense lawyer, Rakoff worked closely with the SEC. Decades ago, he was even interviewed by an SEC chairman for the job of SEC enforcement director. Someone else got the job. Rakoff said he had not applied for the position and pursued it with only halfhearted interest, partly because of the financial trade-off it would entail.
Second, Rakoff isn’t just calling for Wall Street to be held accountable. He’s also insisting that the government be held accountable when it uses its power to make accusations and exact penalties. Law enforcement, he argues, should be more than a government shakedown.
“An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous,” he wrote. “If its deployment does not rest on facts — cold, hard, solid facts, established either by admissions or by trials — it serves no lawful or moral purpose and is simply an engine of oppression.”
The SEC complains that Rakoff would require it to spend more time and money on trials, thereby reducing the number of cases it can pursue. But there’s another dimension. By insisting on proof — not just by tying up resources — Rakoff could well deter regulators from taking some enforcement actions.