Judge Orders SEC to Explain

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.

Citigroup chairman Michael resignation

Everyone from analysts to insiders pointed to the 65-year-old banking veteran as the man behind the move that rattled Wall Street yesterday.

“Recall, in April Michael O’Neill replaced Richard Parsons as chairman of the board. This could have facilitated this move,” Barclays analyst Jason Goldberg said in a research report.

O’Neill’s ties to Citi’s new CEO, Michael Corbat, go back to Corbat’s days as head of Citi Holdings, the “bad bank” division that held the bank’s toxic assets in the aftermath of the financial crisis.

O’Neill had been chair of the Citi Holdings Oversight Committee since joining Citi’s board in 2009.

“They work well together,” sources say about the relationship between Corbat and O’Neill.

The Citi chairman has also made no secret about his desire to get his hands dirty in his new gig — a far different approach from his predecessor Parsons.

Court papers reveal RFK Jr financially

Mary Kennedy, mother of four and estranged wife of RFK Jr, committed suicide when she hung herself in a barn this May. Many said she was in the grips of a long-lasting battle with depression.

A petition filed last week in Surrogate’s Court in Westchester County by Mary’s former divorce attorneys, who say Robert F. Kennedy Jr. failed to pay them a promised $278,000 in legal fees, shed light on RFK Jr’s tactics during the divorce.

The petition papers detail RFK Jr’s “scorched-earth litigation approach” that left his wife cut off from a $20,000-a-month, court-approved credit card, leaving her unable to buy groceries, gas or even medical care for their son.

“Somebody living in a fifth-floor walk-up in The Bronx with cash could do more than she could,” said the source close to Mary Kennedy.

The petition said, “Unfortunately, the last months of Ms. Richardson Kennedy’s life were full of daily financial challenges, directly attributable to Mr. Kennedy’s litigation tactics executed through his family office.”

According to an agreement made in October, RFK Jr. was to continue paying his wife’s household and legal expenses. Mary and Robert F Kennedy Jr were supposed to have a $20,000-a-month limit on a joint credit card, with the bills to be paid by the Kennedy clan’s money manager, the Park Agency.

Financially cutting off his estranged wife was a  tactic meant “to squeeze her and make her panic,” said the source. Cutting Mary off came during a time when many important issues were being decided upon following the divorce, including custody and division of assets.

Judge to SEC Explain your $100M

Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits not denies wrongdoing?” Rakoff asked the parties in a letter that set the Nov. 9 hearing.

“Given the SEC’s statutory mandate to ensure transparency in the financial marketplace, is there an overriding public interest in determining whether the SEC’s charges are true?” the judge added.

Citi ultimately pocketed $160 million in fees and trading profits off the sales of the product and its failure, while Citi’s customers were left holding the bag for the default, the SEC said.

The allegations are similar to charges the SEC brought against Goldman Sachs last year, which resulted in top Goldman execs being dragged before Congress and a $550 million fine -- the largest ever.

Rakoff also questioned Citi’s fine in comparison to Goldman’s, noting that Citi’s penalty portion is just $95 million, or “less than one-fifth” Goldman’s $535 million penalty.

“How can a securities fraud of this nature and magnitude be the result simply of negligence,” Rakoff asked.

Citigroup declined to comment.

“We look forward to responding to the questions raised by the court,” said SEC spokesman John Nester.

It isn’t the first time Judge Dread has put the brakes on the SEC’s efforts to cut a deal with a bank accused of serious wrongdoing.

In 2009, the judge made headlines when he called Schapiro on the carpet for a $33 million pact with Bank of America over allegations the bank misled shareholders about details of its Merrill Lynch acquisition.

Rakoff said the fine was paltry compared to BofA’s alleged misdeeds, and he demanded documents from both the SEC and the bank explaining the fine. He ultimately accepted a $150 million settlement with BofA, but not before criticizing the process as “half-baked justice at best.”