The SEC managed to lose a layup of a case against former Citigroup executive Brian Stoker, in a case which revolved around CDO sales where Citi has already agreed to pay fines on the grounds that they misled investors and took the other side of the bet.
The Securities and Exchange Commission had accused Brian Stoker, a former midlevel Citigroup executive, with negligence related to his role in creating exotic mortgage securities known as collateralized debt obligations, or C.D.O.’s. In a lawsuit filed last October, the government said that Mr. Stoker, who prepared sales materials for C.D.O.’s, knew or should have known that he was misleading investors by not disclosing that Citigroup helped select the underlying mortgage securities in the C.D.O. and then placed a large bet against it.
The jury rejected the S.E.C.’s case, concluding that Mr. Stoker was not liable under the securities laws. In addition to handing up its verdict, the jury also issued an unusual statement.
“This verdict should not deter the S.E.C. from investigating the financial industry, to review current regulations and modify existing regulations as necessary,” said the jury’s statement, which was read aloud in the courtroom by Judge Jed S. Rakoff, who presided over the two-week trial in Federal District Court in Manhattan.
In other words, please, please keep doing your job, SEC, just don’t give us terrible cases to adjudicate anymore.
Stoker’s lawyer argued that he was being made a scapegoat for the entire financial industry’s misconduct, and that managed to sell the jury. But it’s irrelevant. At issue is whether Stoker’s sales materials for CDO’s were misleading. That’s it. If they were, he’s guilty. That the SEC couldn’t make this sale displays a pretty rank incompetence on their part:
Even though this case was argued before a jury (ooh, scary! They might go into My Eyes Glaze Over mode on CDO details), the basic issues were simple. The CDO squared that Citigroup director Brian Stoker marketed to investors was presented as having its assets selected by an independent asset manager [...] In fact, the manager on the deal in question (Credit Suisse) was NOT independent, but was chosen because it would go along with Citi’s plan to design the CDO to satisfy the interest of short investors, most important, Citi itself, which took down over half the CDS in the deal, and also stuffed $92 million of its toxic bonds in the cash portion (the non-CDS component). Citi made $160 million while investors lost roughly $700 million.
So what did the SEC’s strategy appear to be? This seems to have been a parallel to the approach in the Goldman suit against Goldman’s Fabrice Tourre: to target an non-executive and get him to roll the higher ups. But Tourre and Stoker were both enough made men to be willing to fight. Stoker had a $2.2 million guarantee for 2007. Guys like that do not want to lose their access to the industry meal ticket.
Sadly, if the SEC can’t secure a conviction in a relatively open and shut case like this, it’s almost certain that they will fold up their tent and stop even a semblance of aggressive prosecutions against the banks. It doesn’t appear they have the personnel available to do the job. After 20 years of near-consistent defunding, I’m not that surprised.




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Nope. It’s just that watching midget porn is more fun for them.
I only wish that failure to prosecute is based on incompetence; because the alternative is systemic corruption.
Incompetence is not a bug it is a design feature brought to you by democrats in name only club of america. motto screwing the middle class since 1976
My guess? The SEC did *exactly* the “job” they were told to do. No one wanted Stoker to “lose” and have to face consequences cuz it leads to thinking that others are guilty, too.
This is our “govt” at “work”
onfor us… thanks for nothing (except wasting my tax dollars on a stupid law suit)!SEC didn’t “blow” the case, they threw the match.
FDL just doesn’t get it.
Perhaps the SEC should just hire boxing promoters. They have the required experience, and they put on a more entertaining show.
Ah……when is “blows the case” valid.E.G. Do you really think the ‘blow up’ of the prosecution of conservative darling Roger Clemens was due to the prosecution IGNORING the specific orders of the judge through stupidity?
Hmmmm. Considering the behavior of this administration and that of branchs “entrusted” with enforcement and prosecution is……..GOING IN THE TANK…..out of question?
It’s more than that. As Yves said over at her post this morning, the SEC has been starved of funds for twenty years. They can’t attract or keep good people and they don’t have enough staff to do the job the agency was created to do. I got a whiff of this back in the 90s when we had an economist from the FTC up to give a talk. He said that he was on a four-day week because they didn’t have money to fund five-day weeks for their staff. The Republicans starved it to death, just like they are going to starve all the other regulatory agencies to death (and Obamacare, too, I imagine).
Ooooh, look. Someone’s got a little chubby. You have to look real hard to see it, tho.
I never noticed before…..that eagle……has no balls.
WOW!!! Did you actually answer my “question” 8 minutes before I asked it????
THat’ spooky!
Right? *cue the twilight zone music*
Didn’t they make a movie about that….”Failure to Launch”? Was that about the SEC or the DoJ in general???
“Sadly”? I think the SEC folding up their tent would be a huge boon to the American people. As of now, people still have the illusion that the government will protect them against Wall Street financial criminals thanks to SEC. Once SEC is disbanded a lot of that illusion will go away… and the criminals in government/Wall Street will have to work harder to find new prey.
Thanks for the info. I can believe it.
Well conservatives – and by that I include today’s so-called “Democrats” – have long opined that they intend to “drown govt in a bathtub” (or words to that effect).
Conservative voters have been propogandized/brainwashed/manipulated into believing this is great.
This instance of the abject failure of the SEC to obtain true “Justice” is yet one example of why shrinking the govt is not in the best interests of the 99%. But hey: it’s GREAT for the 1%. CHA-CHING!!
It wasn’t necessary to put more than the first 2 words in the title of this article; “SEC Blows” would have been sufficient.
No, no. Remember when they threw that hooligan Martha Stewart into the slammer? That’s getting the job done. That sent a clear message to the style-consultant-scofflaw community. (/s)
Surely.
To paraphrase Bart Simpson, they defy the laws of physics by both blowing and sucking simultaneously.