A federal judge in Milwaukee has criticized the Securities and Exchange Commission for being too soft with corporate enforcement, marking the second time the agency has been criticized for weak settlements in the past month.
Shadowing last month's decision by U.S. District Judge Jed Rakoff to kibosh the agency's $258 million proposed settlement with Citibank, a federal judge in Milwaukee told the SEC that its proposed settlement with the Koss Corp. is too vague and asked the agency to provide more facts by January 24. In October the SEC charged Koss Corp., a headphone manufacturer, with accounting fraud.
Wednesday's ruling from U.S. District Judge Rudolph Randa is the latest in a string of actions by federal judges to challenge the way the government agency enforces regulations. The decision underscores the significance of the November ruling by Judge Rakoff to toss out the proposed settlement between the SEC and Citigroup that didn't have enough facts, Rakoff said, and did not force the corporation to admit guilt.
After the Citibank settlement, the SEC responded, saying the proposed agreement was business as usual. But Judge Rakoff's decision -- now followed by Judge Randa -- suggests the status quo is getting a rethink.
Adam C. Pritchard, a law professor at the University of Michigan Law School, told The Huffington Post last month, "Judge Rakoff is saying that he thinks it's time to figure out what the law is, what the obligations are for these banks."
However, amid criticism that the agency isn't doing enough to hold executives accountable for the financial crisis, the SEC announced last week that it is suing six former Fannie Mae and Freddie Mac executives for misleading the public about the mortgage giants' exposure to risky subprime mortgages as the housing bubble deflated.
Last February, SEC chairwoman Mary Schapiro said that the agency doesn't have enough money to satisfactorily police Wall Street or draft new regulations required by the Dodd-Frank financial reform law.
Frustration on the bench has been growing elsewhere. In 2010, two federal judges in Washington, D.C., raised eyebrows over SEC and other government settlements. One judge refused to approve a $75 million settlement with Citibank in another case related to subprime mortgages. Another judge was critical of a $298 million deal between Barclay's and the U.S. Department of Justice over charges that the bank had altered records to obscure international money transfers.