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The Rakoff Lottery

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Jonathan Macey has a powerfully argued op-ed in Politico about Judge Jed Rakoff's refusal to allow the Securities and Exchange Commission to accept a "neither admit nor deny wrongdoing"settlement withCitigroup.

I admire Rakoff's approach. I think that the public would be much better served by an actual investigation and public examination of the facts surrounding the financial crisis than by the payment of a fine.

The fines have no deterrent effect at all, as far as I can tell. And the promise not to do the same exact thing again is just silly. Of course the banks won't do the same exact bad thing again; they'll do another bad thing.

But Macey might be a little too hopeful here.

"Rakoff’s decision is a watershed event for the capital markets. It is a significant victory for the ideals of the Occupy Wall Street Movement. And it just might be the first step on to restoring accountability to both Wall Street and the SEC," Macey writes.

Watershed is too strong.

Right now all we have is one judge refusing to accept a settlement.

There's no practical way he can force the SEC to effectively litigate the case against Citigroup. And unless other federal judges follow his lead, all we'll end up with is a Rakoff lottery. If you get sued by the SEC, just hope Rakoff doesn't get assigned the case.

There are actually very good "separation of powers" arguments against Rakoff's position, so it's very likely that many federal judges might reject it.

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