SEC Settlements Continue to Let Garbage Pile High on Wall Street

By Jake Zamansky

Once again, the Securities and Exchange Commission is looking worn out and toothless as it tries to clean up the messes piled high and wide on Wall Street.

This week, the SEC settled with two former Bear Stearns hedge fund managers whose funds’ collapses marked the start of the financial crisis. In 2007, the managers, Ralph Cioffi and Matthew Tannin, blew up their $1.8-billion pair of funds, and now the SEC wants them to pay a fine of $1 million.

Remember, federal prosecutors were unable to obtain a guilty verdict against Cioffi and Tannin, despite the infamous e-mail in which they wrote of the likelihood that the “entire subprime market is toast.”

Peter Lattman wrote in the New York Times: “As part of the deal with the agency, neither of the former Bear executives, Ralph R. Cioffi or Matthew M. Tannin, will admit any wrongdoing. The agency has been sharply criticized in the courts and in Congress for allowing defendants to settle fraud cases without admitting or denying the charges.”

“This case is being settled for, relatively speaking, chump change,” Judge Block said at the hearing, according to the Times. But he said he “was inclined to sign off on it.”

In turn, the SEC characterized the million dollar settlement as a “very good settlement.”

But the question is for whom was the settlement “very good.” Is it investors, the SEC or the two hedge fund managers?

Lest we forget, the collapse of the two Bear Stearns funds in June 2007 was the first shockwave in the eventual financial crisis that almost took down the entire economy along with the retirement and life savings of millions of Americans.

It is cold comfort that, after a failed criminal prosecution, the SEC would claim that a “chump change” settlement is in any way good for investors or a real punishment of wrongful activities. And yet again, the defendants were not required to admit liability – the type of settlement that would not likely pass muster with federal judge Jed Rakoff, who has rejected similar settlements with Merrill Lynch and Citigroup.

Under the terms of the agency’s settlement with the former Bear executives, Cioffi will disgorge $700,000 in illegal gains, pay a $100,000 penalty and agree to a three-year ban from the securities industry, the Times reported. Mr. Tannin will forfeit $200,000 in illegal gains, pay a $50,000 penalty and accept a two-year ban.

Paying $1 million for blowing up almost $2 billion?

That’s not justice. That’s a mockery of justice, and the investing public deserves better.

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