Editorial: No wrist-slap for Citigroup

It seemed like business as usual until the high-profile case met a judge who won't accept business as usual.

The Securities and Exchange Commission had accused Citigroup of fraud, and the banking giant agreed to settle the charges -- without admitting or denying guilt -- for $285 million. This is how the SEC usually does things.

But Jed Rakoff, a federal district judge in Manhattan, rejected the deal, calling the $95-million penalty portion of the settlement "pocket change." And he condemned the whole idea of settling without any admission of what the facts are.

Rakoff is right on both counts, and his ruling echoes public ire at financial institutions that seemed to get away with murder in the wake of the financial crisis of 2008. Since then, judges have been handing individuals tougher penalties for financial crimes, and several state attorneys general, led by New York's Eric Schneiderman, have balked at letting banks settle allegations of illegal foreclosure shortcuts without further investigating.

The Rakoff case involved civil charges that, in 2007, Citigroup sold a $1-billion investment fund into which it dumped dubious mortgages, making $160 million for itself while investors lost $700 million. Citigroup, the SEC said, wrongly claimed the securities were chosen independently, and bet against them.

Rakoff's point is simple: When financial institutions are elephantine, they're too big to be deterred by taking away a few peanuts.