Now that Occupy Wall Street has faded from public squares, some of its members are focusing their energy on courtroom battles. On Monday the group filed what appears to be its first amicus brief, urging the U.S. Court of Appeals for the Second Circuit to uphold U.S. District Judge Jed Rakoff’s controversial rejection of the Securities and Exchange Commission’s $285 million settlement with Citigroup Global Markets Inc.
If you expected the brief to be stuffed with inflammatory rhetoric, you’d be wrong. The 27-page brief, whether you agree with it or not, presents a clear argument for why Rakoff’s ruling should stand. Arguing for judicial deference by the appellate court, it asserts that Rakoff simply wanted more information to determine if the settlement is in the public interest. The Second Circuit, the group maintains, should not usurp this fact-finding function of the lower courts.
“In reality, this case is simply about whether a district court has the authority to demand the adequate production of facts to assess how a proposed consent order would affect the public interest,” states the brief, which was filed by the Alternative Banking subgroup of Occupy Wall Street. “It was the Second Circuit that crossed the line by substituting its judgment as to the sufficiency of the factual evidence supporting the settlement. That is the sort of factual inquiry that should be left to the district court judge.” (The Second Circuit suggested in March that it would likely reverse Rakoff.) The group accuses the SEC and Citi of mischaracterizing Rakoff’s ruling by claiming that the judge largely refused to approve the settlement because Citi wouldn’t admit to wrongdoing.
OWS didn’t limit its argument to procedural principles, though. It also took aim at the proposed settlement itself, asserting that it wasn’t in the public interest: “Picayune monetary settlements like the $285 million wrist-slap presented here fail to provide punishment sufficient to deter similar conduct in the future.” The brief also shows a sophisticated understanding of the market for the sorts of collateralized debt obligations that are at the heart of the SEC’s case. (To recap briefly, the SEC accused Citi of failing to tell investors in a failed CDO that it had helped select assets for the CDO and then bet against the investment vehicle. Some of our previous coverage of the case is here and here.)
The brief, which the Second Circuit must still decide whether to accept, lists as its author Akshat Tewary of Edison, N.J. Tewary is a former Kaye Scholer associate who now works at Kamlesh Tewary in Edison. (The firm is not listed on the brief.) According to the Naked Capitalism website, the brief was also authored by Yves Smith, who writes that website and has chronicled the financial crisis, and by a recently-minted Harvard economics Ph.D named Andrew Dittmer.
Tewary told the Litigation Daily that OWS’s Alternative Banking group decided to get involved because they’d been encouraged by Rakoff’s ruling. “We felt the Rakoff decision could have been a great precedent,” he said. “We were excited about it.” He added: “There are different ways to make our voices heard than through the streets. I think this is an untapped venue where we can have a lot of sway. It’s important to get in the ring on this.”
Tewary also contributed to a comment letter on the proposed Volcker rule that was submitted in February by an affiliated group called Occupy the SEC. As our colleague Catherine Dunn at Corporate Counsel reported, that 325-page letter was “widely praised. . .as smart, well-written, and detailed.”
Not surprisingly, an array of business interests and high-profile law firms have filed their own amicus briefs urging the Second Circuit to reverse Rakoff. They include the Securities Industry and Financial Markets Association, which is represented by Davis Polk & Wardwell; the Business Roundtable, represented by Gibson, Dunn & Crutcher; and the U.S. Chamber of Commerce, represented by Latham & Watkins. The Business Roundtable, for example, maintains that Rakoff’s ruling represents a “novel, and potentiallydangerous, approach to reviewing settlement agreements,” while SIFMA warns that the ruling would have a “profoundly negative impact on the effective enforcement of the securities laws.”
