How Citi is getting off easy
That last one is a doozy because it highlights a major weakness in the
settlement -- its narrow scope. The SEC limited its legal case against Citi to
a single transaction, a CDO dubbed "Class V Funding III" that the
financial giant assembled in 2006-07 as the roof was caving in on the housing
sector. The investment defaulted in a matter of months, while the bank made
$160 million in profits and fees.
n other words, Citi appears to have
left lots of bodies in the ground, but it's paying the price for only one of
those hits. And even there it's getting off lightly. The SEC charged only one
Citi banker under the settlement, a lower-level executive named Brian
Stoker who was gracious enough to stick his head in the noose with a
series of incriminating emails.
This
is a matter of will and leadership. Its chairwoman, Mary L. Schapiro,
while deserving credit for pushing investigations of structured investments, is
sending the signal that she does not want to lose. Her agency is meekly willing
to get token settlements when the situation calls for Old Testament justice.
Someday,
the SEC will have to go up against a top executive who has resources to fight,
and who was too sophisticated to put anything rash in writing. This seems to be
our fate: our bankers took reckless risks, but our regulators take none.
