So remember when Citi did that thing that was all the rage in 2007 where they constructed a synthetic CDO referencing mortgage-backed securities in order to facilitate their own prop bet against those MBS, but then maybe inadequately disclosed to investors that they were in fact naked short those MBS? And then they got sued by the SEC for fraud, and settled that case for $285mm, or tried to anyway*? Well the SEC also sued one Brian Stoker, the Citi VP who structured that deal, because it’s important for the SEC to pursue powerful individuals responsible for financial crisis wrongdoing and who could be more powerful than the vice president of Citigroup? And unlike Citi, Brian Stoker chose to roll the dice, and today he won big but with an asterisk:
A jury on Tuesday cleared a former Citigroup executive of wrongdoing connected to the bank’s sale of risky mortgage-related investments at the peak of the housing boom, dealing a blow to the government’s effort to hold Wall Street executives accountable for their conduct during the financial crisis.
In addition to handing up its verdict, the federal jury also issued an unusual statement addressed to the Securities and Exchange Commission, the government agency that brought the civil case.
“This verdict should not deter the S.E.C. from investigating the financial industry and current regulations and modify existing regulations as necessary,” said the statement, which was read aloud in the courtroom by Judge Jed S. Rakoff, who presided over the trial.
Thanks jury! Bringing lawsuits about mortgage CDO marketing practices has been the major focus of the SEC’s response to the financial crisis,** and this was the first time that approach was tested in court, and the SEC’s lawyers spent building the case only to see a jury shoot them down in two days, and they have no courtroom victory or precedent to show for their work, but they won the one thing that is truly important in this vale of tears: an encouraging note from a group of anonymous strangers. Read more »