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In Bank Cases, Judges Refuse To ?Rubber-Stamp? Settlements

By Joe Palazzolo

Judge Emmet Sullivan (gov)

The U.S. District Court for the District of Columbia is the backyard of the nation’s federal law enforcement agencies. But this week, government lawyers could be forgiven if they felt like trespassers there.

In hearings on Monday and Tuesday, federal judges registered pique at proposed settlement agreements between the government and multinational banks, calling one “a sweetheart deal” and the other “baffling.”

On Tuesday, Justice Department prosecutors laid a proposed $298 million settlement with Barclays Bank Plc at the doorstep of U.S. District Judge Emmet Sullivan.

Barclays is charged with engaging in transactions in countries — including Cuba, Iran, Libya, Sudan and Myanmar –facing economic and trade sanctions by the U.S. The total value of the illegal transactions was about $500 million, according to court documents.

Under the proposed agreement, the bank would avoid prosecution if it complies with a list of requirements, including creating a training program for employees who are involved in the processing of U.S. dollar payments.

Sullivan was unimpressed.

“This is a sweetheart deal,” Sullivan said, according to Reuters. The judge added that the average American citizen who gets caught robbing a bank would face a much stiffer penalty.

“This concerns the court, and that should concern the government too,” Sullivan said.

A Justice Department lawyer said in court that the $298 million was beyond what the bank earned on the transactions.

Securities and Exchange Commission lawyers on Monday faced a harsher critic in U.S. District Judge Ellen Segal Huvelle, who called the agency’s proposed $75 million settlement with Citigroup Inc. over the bank’s disclosure of subprime-mortgage problems “baffling.”

Judge Ellen Segal Huvelle (gov)

According to The Wall Street Journal, Huvelle, betraying her frustration, asked a series of sharp questions, including why the SEC pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged sins of bank executives.

“I look at this and say, ‘Why would I find this fair and reasonable?’” Huvelle said, according to the Journal. “You expect the court to rubber-stamp, but we can’t.”

The settlement would resolve allegations that Citigroup intentionally misled investors by understating its exposure to subprime assets in 2007 by nearly $40 billion.

Monday’s hearing represented the second time in recent memory that Huvelle has criticized a proposed settlement.

In March, she delivered a critique of independent compliance monitors at hearing over a deferred prosecution agreement with Innospec Inc., an international specialty chemicals company charged with foreign bribery.

Sullivan, too, has a history of challenging the department. He presided over trial of the late Sen. Ted Stevens, frequently criticizing the government’s tactics in open court, and later ordered an outside counsel to investigate the prosecutors on the case for criminal contempt.

Sullivan scheduled another hearing in the Barclays case for Wednesday. Huvelle requested that the SEC and Citigroup file additional legal briefs and set a hearing date for mid-September.

Full post as published by Main Justice on August 17, 2010 (boomark / email).