While it may have taken more than four months for him to decide, Judge Frederic Block has finally done what everyone expected him to do: bless the pittance of a settlement between the Securities and Exchange Commission and the two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, whose poor investment decisions cost investors $1.6 billion and proved to be the canary in the coal mine of the financial crisis.
To his credit, Judge Block was not happy about it. Four years after Cioffi and Tannin were sued civilly by the SEC and indicted criminally by the U.S. Attorney in the Eastern District of New York (a jury acquitted the two men in 2009), Judge Block wrote in an opinion that the settlement -- in which Cioffi will pay $800,000 and Tannin will pay $250,000 and be enjoined from the securities industry for a short period of time -- raises legitimate questions about the tools the SEC has to extract meaningful accountability from Wall Streeters who mess up.
He noted that the proposed settlement is a tiny fraction of what investors lost, although some have recovered a portion of their investments through private litigation and arbitration. The settlement “would amount to less than half a percent of the $1.6 billion in investor losses the defendants allegedly precipitated,” Judge Block wrote. “Little wonder that many believe that the SEC is simply not up to the task of enforcing the securities laws.”
When the litigants first proposed the settlement in his court in February, Judge Block referred to it as “chump change,” raising the prospect that he might reject it and ask for a more substantive penalty. But it was not to be, in part because Judge Block noted, with obvious frustration, he had no choice but to approve the settlement because of “the limited powers that Congress has afforded the SEC to recoup investor losses -– as well as obstacles that it has placed in the path of litigation by the private bar.” Block further asked “Congress to consider whether more should be done by the government to come to the aid of the victims of Wall Street predators.” Indeed, Congress should do just that.
Of course, as part of the settlement, neither Cioffi nor Tannin admitted or denied any responsibility for what happened to their two hedge funds. What a great system.
(William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule theWorld,” is a Bloomberg View columnist. The opinions expressed are his own.)