Securities Attorneys Watch One Judge Stand up to a Sea of Settlements Tantamount to Scheming.

U.S. District Judge Jed S. Rakoff made waves in the media in 2011 for his refusal to “rubber stamp a deal between the U.S. Securities and Exchange Commission and Citigroup to settle civil charges of securities law violations,” and most recently, for the way his moral bravery was bowled over and swallowed up by a federal appeals court’s reversal of his decision. Marked as one of Fortune’s 50 Great Leaders and heralded by The Wall Street Journal as standing up for the truth, Judge Rakoff has risen to the status of hero among many securities attorneys devoted to justice in the financial world. Unfortunately, however, Judge Rakoff’s moral stand was overturned in favor of what the federal appeals court called “pragmatism.”

Here’s the skinny: Citigroup was accused of the very same “sort of fraud that crashed the U.S. economy in 2008,” that is, failing to disclose to its buyers that “it had helped select the dicey subprime mortgages that backed [the collateralized debt obligations] and that it would itself be shorting—betting against—these very CDOs.” Yep, that sounds like Bank of America, Goldman Sachs, and J.P. Morgan Chase—2008 all over again. And Rakoff wasn’t going to have it. In the case over which he presided, the settlement terms were to quietly hand over $285 million to the SEC and allow Citigroup to neither admit nor deny any wrongdoing. Which doesn’t really seem right, say securities attorneys in San Antonio such as Doug Shumway. The commendable actions of Rakoff were not just for the courtroom, but for “the public’s right to learn more about Citigroup’s behavior in the case.”

Securities attorneys like Shumway are all too aware that a courtroom dealing with financial giants like Citigroup are often less about “justice” and more about…well, the “pragmatism” that the appellate court touted in overturning Rakoff’s judgment. “Trials are primarily about truth,” it scoffed. “Consent decrees are about pragmatism,” a sentiment hardly palatable for those of us interested in justice and public interest. But as one commentator on the decision has pointed out, “Regulated entities cannot afford to fight for the truth…and the SEC is not rewarded for ferreting out the truth and bringing cases based squarely upon it.”

Writing “It is not within the district court’s purview to demand ‘cold, hard, solid facts,’” the U.S. Court of Appeals for the Second Circuit judges may be doing more than hardening our already cynical view of government collusion with financial giants and confirming our suspicions that companies are allowed to do whatever they’d like, as long as they have enough money. This appellate court decision is striking fear into the hearts of the public. If banks are allowed to do what they’d like in spite of the honest attempts of securities attorneys and morally upstanding judges to countermand their recklessness, what hope is there for justice—and truth?

Even if the appellate court has ruled that truth is a luxury, at least one District Court Judge disagrees. Rakoff’s belief that “an application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous” is something that is indeed worth standing up for.