A federal judge on Tuesday criticized Barclays’ $298 million deal with the U.S. authorities to settle charges of facilitating payments that violated sanctions against countries including Cuba and Iran.
Emmet Sullivan, U.S. district judge, suggested that regulators were giving big banks preferential treatment by offering them settlement options not available to individual defendants facing criminal charges. A full hearing is set for Wednesday.
“Why isn’t the government getting tough with the banks?” he asked, calling the proposed settlement a “sweetheart deal”.
Judge Sullivan’s tough stance marks the third time in less than a year that U.S. courts have questioned settlements reached with banks. On Monday, a federal judge refused to approve a $75 million settlement deal for Citigroup .
Barclays agreed to make the payment in a deal to settle charges that it facilitated payments between 1995 and 2006 to countries facing U.S. economic and trade sanctions also including Libya, Sudan and Burma. The U.S. Department of Justice had been expected to approve the deal within days. Lloyds Banking Group and Credit Suisse reached similar settlements over the past year.
Judge Ellen Huvelle, the judge in the Citi case, sent a clear warning that the courts cannot be expected to “rubber stamp” deals agreed by the Securities and Exchange Commission. She said there was no “guidepost” as to whether $75 million to settle charges relating to Citigroup’s failure to disclose properly its exposure to subprime mortgages was fair and reasonable.
The judge also questioned the regulator’s decision to charge Gary Crittenden, Citigroup’s chief financial officer at the time, and Arthur Tildesley, the bank’s then-head of investor relations, without pursuing top executives such as Chuck Prince, the former chief executive. “You’ve focused on two individuals and I can’t for the life of me see why,” Judge Huvelle told SEC lawyers.
Her demand for more information – a fresh hearing is scheduled for September 24 – follows last year’s rejection of a $33 million settlement between the SEC and Bank of America related to its takeover of Merrill Lynch. The move by Judge Jed Rakoff ended with his reluctant eve-of-trial acceptance of a revised $150m deal.
The increased judicial willingness to challenge settlement deals is a further headache for the SEC, as it seeks to demonstrate that the actors behind the near-collapse of Wall Street will be held to proper account. The scarcity of high-profile individual prosecutions is fuelling skepticism about the effectiveness of the enforcement agencies’ response to the crisis.
Legal experts cite the judges’ frustration at the lack of detailed information on the corporate chain of command in both the Citi and Bank of America cases.
“In future, the SEC has to show individual responsibility and it’s only making slow progress towards lifting the corporate veil,” John Coffee, a Columbia University law professor, said. But he highlighted differences between the two settlements that have come under judicial challenge: “I don’t think Citigroup is quite as pathologically mysterious a settlement as Bank of America, where you had no idea who had done what.”
The Citigroup deal may well end up being approved next month – the judge has asked for more information, rather than attacked the deal outright. Other SEC settlements for charges stemming from the financial meltdown, notably the $550 million deal with Goldman Sachs, have been approved by the courts.
The judicial challenge may even help the bank. In defending the proposed deal, SEC lawyers had to explain why fraud charges were not pursued. “Those statements will be enormously helpful in civil litigation,” said a person familiar with the matter.