Perhaps more than any other jurist on the Southern District of New York (SDNY), the Hon. Jed S. Rakoff is regarded by both legal and lay observers as a visionary leader and a portrait of fair-minded judicial temperament.
Former New York City Mayor Ed Koch, commenting on Judge Rakoff's high-profile decision to reject the SEC's settlement with Citigroup because it allowed Citigroup to settle without admitting or denying wrongdoing, characterized Judge Rakoff as "a light unto his fellow jurists." Judge Rakoff had rejected a $285 million negotiated settlement, in part because the deal included then-standard neither-admit-nor-deny language. The SEC has appealed, and the case is pending before a panel of the U.S. Court of Appeals for the Second Circuit—a court that has previously not seen eye-to-eye with Judge Rakoff.
Steven Pearlstein's op ed in the Washington Post called Judge Rakoff's decision to deny another SEC settlement as "a flagrant case of judicial overreaching" but then praised the judge, saying he is “the kind of activist judge we need more of.” In breathless voice, Pearlstein wrote that "[d]espite decades on the bench, [Judge Rakoff is] still naive enough to believe that the laws mean what they say, and that just because everyone does it doesn't mean it's right. He refuses to allow his court to be used to burnish the public reputations of the parties, especially when it comes at the expense of the truth. He cares about outcomes more than process." That is fawning praise from a Pulitzer Prize-winning commentator known for his willingness to ask difficult questions about the 2008 financial crisis.
Judge Rakoff's has been praised in the vaunted pages of New Yorker and The Atlantic. He has cemented his reputation as a "maverick," a "populist firebrand" who is "fighting for the common man."
Whether he is a leader or a maverick, Judge Rakoff's views on SEC settlements are well outside the mainstream, even for his own court. While other judges have approved settlements in financial crisis litigation, Judge Rakoff has pressed financial institution defendants in a way that is unprecedented.
Several commentators have weighed in on the impact the maverick jurist (and his cult following) have had on the development of SEC settlement law. See, e.g., here, here, and here. I want to make a broader point about the consequences of a maverick like Judge Rakoff on the federal bench.
Under the helm of the capable Mary Jo White, the SEC is conducting numerous enforcement actions against major financial services industry players. In addition to Citigroup, the SEC is litigating against (among others) Goldman Sachs, ICP Asset Management, J.P. Morgan Securities, Wachovia Capital Markets, Wells Fargo, and UBS Securities. As of the first of this month, the SEC has charged 161 entities and individuals and has ordered over $1.5 billion in penalties.
Because the relevant conduct occurred at big Wall Street banks, most of these cases are brought in the SDNY where they are assigned randomly to one of the twenty-five active or twenty-four senior status judges (there are currently three unfilled vacancies on the SDNY). In other words, while there is a small chance that Judge Rakoff will hear an SEC enforcement action, the case will most likely be given to one of the forty-eight other sitting judges—judges who (for the most part) have been willing to approve SEC settlements that don't involve admission of wrongdoing. See, e.g., here, here, and here.
But if a bank is unlucky enough to draw Judge Rakoff—the maverick, populist hero—it may incur millions of dollars (or hundreds of millions of dollars) in extra legal fees and liability exposure before it agrees to a settlement Judge Rakoff deems suitable.
Justice should not depend on what judge you are assigned by a random selection process. The Court should determine a fair settlement, not the Clerk of Court and its assignment wheels. Unfortunately, that's what happens when a rogue jurist decides to play cult hero.
While Judge Rakoff likely believes that his hard-line approach to settlement approval is reigning in Wall Street regulatory capture, it's actually creating a judicial sweepstakes that decides outcomes before the parties ever appear in court. That's not justice.