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The old rules went like this.

A big, Wall Street bank commits fraud, and is called on it by the SEC. The two parties then agree to a settlement, which puts an end to any allegations of fraud. The big bank pays a nominal penalty to the SEC, but does not have to admit to any wrongdoing. It does promise not to commit fraud in the future, but the bank knows that this is a hollow promise.

That’s the way the world worked in the past. If the bank was guilty, then it was getting off lightly to say the least. And if it was innocent, it could see the above as the cost of doing business.

Yesterday, Judge Jed Rakoff changed the rules. In a persuasive ruling that everyone should read, Judge Rakoff said that these types of settlements are unacceptable, and he ordered the two parties to try the case in July 2012.

The conclusion to Rakoff’s ruling made me feel hopeful about the future. For once we had someone with the courage to stand up and say no to business as usual on Wall Street. His powerful words are below. Perhaps others will be inspired to also stand up against fraud on Wall Street.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.

You can read the entire ruling here:

http://www.nysd.uscourts.gov/cases/show.php?db=special&id=138 

And here's a quick take on the ruling from yesterday:

http://www.fool.com/investing/general/2011/11/28/judge-blocks-citigroups-sweetheart-deal.aspx 

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