Beau Brendler feels a certain frustration with Tuesday’s jury verdict in the Securities and Exchange Commission’s failed case against former Citigroup employee Brian Stoker.
Brendler, you see, was the jury foreman.
It’s not that Brendler thinks that he and his fellow jurors reached the wrong result when they found Stoker not liable. He doesn’t. The problem, as he tells it, is that the trial exposed much about what’s wrong with Wall Street without offering an acceptable remedy.
“This was not a verdict about Citi being absolved of any wrongdoing,” said Brendler in a conversation I had with him Wednesday. “I think we as a jury felt there was probably wrongdoing going on, but it was the collective wrongdoing of Citigroup.”
As I discussed in my last column, Stoker is the former Citi employee who was singled out by the SEC and sued for negligence along with Citi for allegedly misleading investors who saw $700 million vanish in a $1 billion CDO. According to the SEC, Stoker and Citi should have told investors that Citi selected some nasty assets that went into the CDO and then bet against them, making $250 million on that bet, as well as $34 million in fees. As you know, Citi tried to settle these charges for $285 million without admitting wrongdoing, but U.S. District Court Judge Jed Rakoff in Manhattan refused to approve the deal. That case is now before the U.S. Court of Appeals for the Second Circuit.
“We could not in good conscience find Mr. Stoker liable given the evidence presented,” explained Brendler, a freelance journalist from Patterson, N.Y., who covers the tech and business worlds. He said Stoker’s lawyer, John Keker of Keker & Van Nest, effectively questioned why Stoker, of all people, was being targeted. “He made a strong case for what we were all feeling: The SEC tried to focus on a relatively low-level executive who had several layers of managers above him,” Brendler said. “He did not act in some kind of vacuum where his behavior was not tolerated or encouraged by his bosses. . .To try to hang all this on Stoker didn’t work.”
Brendler thought the SEC could have done a better job making its case. “A lot of the evidence consisted of emails that could be interpreted different ways,” he pointed out. But he said he understands that it’s difficult to get Wall Street to testify against Wall Street. The suddenly faulty memories of a lot of witnesses from the world of high finance threw a roadblock in the SEC’s case. “A lot of people called as witnesses for the prosecution were people on Wall Street and were connected to Citigroup,” he said. “There was a whole lot of, ‘I don’t recall,’ and ‘I can’t recall.’”
Because Brendler and his fellow jurors were concerned about the message that their decision might send, they took the extraordinary step of including an admonition to the SEC with their verdict: “This verdict should not deter the SEC from continuing to investigate the financial industry, to review current regulations, and modify existing regulations as necessary.”
“We were all concerned that the verdict would prompt the SEC to back away from this kind of investigation,” said Brendler. “We didn’t want the verdict to be interpreted as some sort of signal that organizations like Citi are not somehow responsible for the financial crisis. We know they are. . .We realized that this trial was a window into what those people do, creating these bizarre CDOs. We found their behavior outrageous and appalling.”
As we’ve seen from the government’s successful insider trading cases against former Goldman Sachs director Rajat Gupta and hedge fund titan Raj Rajaratnam, there are those at the highest levels of our financial sector who cheat and deceive. But, as that case also showed, it took the extraordinary measure of getting wiretaps for prosecutors to build a solid case against those men. Most executives are smart enough not to say incriminating stuff in emails these days. Stoker and his counterpart Fabrice Tourre at Goldman Sachs found themselves sued by the government after they had the bad judgment to send some indiscreet emails.
So what’s the answer? The SEC is surely stinging from this defeat. But I hope it takes the Stoker jury’s message to heart. And Brendler offers another suggestion: Aim higher.
“I would like to see the CEOs of some of these banks in jail or given enormous fines,” he said, “not a lower level employee.”
