The SEC’s losing battle against banks

By urging the SEC to punish financial crimes more aggressively, Judge Jed Rakoff “may have inadvertently made the SEC’s job” that much tougher, said Tim Fernholz at The New Republic.

Tim Fernholz

The New Republic

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Proving white-collar fraud is difficult. That’s why the SEC has used “public opinion more than the law” to force through settlements that require banks to pay penalties but not admit guilt. Of course it’s flawed justice that bankers aren’t held accountable, and that penalties are usually a pittance. But in pushing the SEC to take banks to court rather than to settle, Rakoff may have set the bar too high. “The view on Wall Street is that the agency simply doesn’t have the resources” to wage lengthy legal battles with deep-pocketed banks.

Congressional Republicans have refused to give the SEC more money, despite the agency’s new responsibilities under the financial reform bill. Rakoff’s decision forces the SEC to show its teeth, but the watchdog could come away looking toothless.