US senator: Show me the economic analysis on settlements vs trials

WASHINGTON Tue May 14, 2013 1:36pm EDT

WASHINGTON May 14 (Reuters) - A U.S. senator who has criticized Wall Street is asking federal regulators and law enforcement officials whether they have the economic analysis to back up their routine practice of letting big banks settle cases without admitting guilt instead of taking them to trial.

In a May 14 letter to the heads of the Federal Reserve, the Securities and Exchange Commission and the Justice Department, Massachusetts Democratic Senator Elizabeth Warren asks the agencies to provide her with details of how they weigh the costs and benefits of settling versus trying cases.

"If a regulator reveals itself to be unwilling to take large financial institutions all the way to trial - either because it is too timid or because it lacks resources - the regulator has a lot less leverage in settlement negotiations and will be forced to settle on terms that are much more favorable to the wrongdoer," Warren wrote.

Concerns about whether regulators are properly weighing the costs and benefits of their policies have typically been voiced by Republicans and the financial industry as a defense mechanism against regulations they oppose.

Allegations of conducting a shoddy cost-benefit analysis have been used successfully by corporate groups in legal challenges to SEC rules.

They have also arguably led to a slow-down by financial regulators as they try to finalize provisions required by the Dodd-Frank Wall Street reform law.

The use of the argument by Warren marks a rare occasion in which a liberal has adopted that same strategy, but this time to promote a pro-regulatory agenda.

Both the SEC and the Justice Department have faced criticism for the handling of cases tied to the 2007-2009 financial crisis.

The bulk of the criticism against the DOJ has centered on the fact that it has not brought many actions against Wall Street banks, and that few high-level executives have gone to jail.

In instances where they do settle criminal allegations, however, the DOJ does usually require the admission of certain facts.

The SEC, by contrast, has brought the most financial crisis cases of any government agency. However, in many of those cases, the SEC has allowed banks to settle the civil charges without admitting or denying the allegations.

The SEC's settlements have been challenged by Federal District Court Judge Jed Rakoff, who refused to approve a proposed $285 million settlement with Citigroup in connection with a financial crisis case.

The SEC and Citigroup have appealed that decision and are awaiting a ruling.

Previously, Rakoff also turned down a $33 million SEC settlement with Bank of America Corp, and only approved it after the amount was raised to $150 million.

Warren first raised concerns about whether banks were "too big for trial" in her debut Senate Banking Committee hearing in February. [I.D. nL1N0BE70V]

In that hearing, she sharply questioned top officials from the Office of the Comptroller of the Currency and the SEC, among others, about the last time they took a big Wall Street bank to trial.

The video of her exchange later went viral on the Internet and inspired a liberal political action committee to launch an online petition urging the SEC to take more banks to trial. [I.D. nL1N0BJ9CD]

After the hearing, Warren also sent a letter to Comptroller of the Currency Thomas Curry asking him the same question she is now asking the SEC, DOJ and Fed - has an internal analysis weighing settlements with admissions versus trials been done?

Warren said the OCC later told her no such analysis existed.

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