Rakoff seeking truth of Wall Street wrongdoing labeled rogue

Judge Jed Rakoff (Source: Bloomberg) Judge Jed Rakoff (Source: Bloomberg)

April 4 (Bloomberg) -- U.S. District Judge Jed Rakoff doesn’t shy away from high-profile fights.

In 2005, he challenged the Department of Defense for holding suspected terrorists at Guantanamo Bay in Cuba without identifying them. The Pentagon protested his order to release their names, saying it would undermine their privacy rights and in a few cases threaten national security. The judge rejected most of the arguments from the military and forced it to reveal the names, Bloomberg Markets magazine reports in its May issue.

“I’m not by nature reticent,” Rakoff, 68, says from behind his glass-topped desk in his chambers in lower Manhattan. “I wonder if Rush Limbaugh is ever going to come after me.”

Rakoff sits on the court for the Southern District of New York, which covers Wall Street. He has presided over a number of heavyweight financial lawsuits and currently is overseeing the case of former McKinsey & Co. head Rajat Gupta, who’s charged with insider trading. The judge is also embroiled in a battle with the Securities and Exchange Commission over what he considers its tepid enforcement of the law.

On Nov. 28, Rakoff threw out the SEC’s $285 million settlement of a lawsuit with Citigroup Inc. for selling $1 billion of toxic mortgage securities in a collateralized debt obligation that defaulted in 2007. As part of the agreement, New York-based Citigroup neither admitted nor denied the agency’s allegations, a clause that has been standard in such settlements for at least four decades. Rakoff said he wanted the SEC to reveal more facts about Citigroup’s wrongdoing so he could judge whether the settlement is fair.

‘Fearful Whispers’

“In much of the world, propaganda reigns, and truth is confined to secretive fearful whispers,” Rakoff wrote in the Citigroup case. “But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges.”

An appeals court may soon block Rakoff from getting the truth. The SEC, stung from the judge’s criticism, appealed his Citigroup ruling -- the first time the agency has challenged a judge’s decision in an enforcement action since 1984. In a blunt rebuke to Rakoff on March 15, the U.S. Court of Appeals in Manhattan said judges like Rakoff have only minimal authority to second-guess the SEC, which is better equipped to protect investors.

The appeals court won’t make a final ruling until at least September, when a court-appointed lawyer, Lankler Siffert & Wohl Partner John Wing, presents Rakoff’s argument.

Death Penalty

“The court says Rakoff’s a rogue judge,” says Adam Pritchard, a professor of law at the University of Michigan. “It is not the district court’s business to determine what’s in the public interest.”

Rakoff’s bold decisions have been shot down before. In 2002, he ruled the death penalty unconstitutional in a case before him -- a decision that was later reversed.

“He’s not a madman off on a power trip,” says David Schulz, the attorney who represented the Associated Press, which was seeking the names in the Guantanamo case. “He is a very principled guy who wants the government to do the right thing and gets very impatient when it doesn’t.”

Rakoff’s rulings helped spur the $162 million settlement on March 16 of a lawsuit threatening the owners of the New York Mets. The trustee of Bernard Madoff’s investment firm claimed co-owners Fred Wilpon and Saul Katz ignored warnings of fraud in order to pocket hundreds of millions of dollars in profits. Rakoff had earlier rejected much of the trustee’s $1 billion claim while also putting the Mets at risk of paying as much as $386 million.

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