Goldman Should Get Fair Shake From Judge Jones

Judge Barbara Jones, who will be handling the SEC's case against Goldman Sachs, has a reputation as a savvy, even-handed adjudicator who bases her decisions on law instead of politics.
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Updated with additional commentary.



) --

Goldman Sachs

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may have one thing on its side when it comes to battling a key regulator in court: A sympathetic judge.

Of course, sympathy is a relative term when it comes to the public interest vs. the banks these days. Yet lawyers and other courtroom players who have worked with Barbara S. Jones -- the judge handling the

Securities and Exchange Commission's

case against Goldman -- describe her as even-handed, fair, apolitical and no-nonsense. They say Goldman needs to worry more about how strong the SEC's legal case is, rather than any prejudice on her part.

"Each side here -- the SEC and Goldman -- are probably happy with the selection of Barbara Jones as a judge, and to me that would be the definition of a good judge," says Rob Friedman, one of several lawyers who echoed similar comments. "She's smart, she's fair, she runs a good courtroom and while she has a very extensive government background before she took the bench, she's certainly not going to rubber stamp anything the government does. She's going to handle things according to the law."

Judge Barbara Jones has a reputation as a middle-of-the-road arbiter who doesn't necessarily favor banks or the government.

Friedman dealt with Jones when representing Pension Benefit Guarantee Corp. some years ago, when he worked at Kelley Drye & Warren. The case mostly involved activist investor Carl Icahn and

American Airlines

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, and he says Jones handled the proceedings in a smart, fair way throughout. Friedman is now a partner at Sheppard Mullin, handling business and white-collar cases, and says that though he hasn't worked with her in some time, Jones' reputation remains intact.

On , a Web site where lawyers and litigants can rate judges they have interacted with, Jones garnered an overall 7.4 out of 10 rating. Her highest scores were in even-handedness, punctuality, and involvement in civil-settlement discussions. Her lowest was in "industriousness" and her tendency to be pro-government or anti-government in criminal cases landed right in the middle: A perfect 5.

In a recent ruling regarding disclosures and conflict of interest, Judge Jones sided with the defendant,

Morgan Stanley

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, rather than the investors suing the firm. The investors claimed that Morgan Stanley hadn't disclosed all material information about its role as both a broker and a dealer -- the quintessential conflict of interest for securities firms. But Jones decided that the plaintiffs hadn't identified any legal basis that required Morgan Stanley to disclose more than it did in its offering documents. An appellate court upheld her decision.

While each case is different, and it's possible that the SEC has some stunning evidence up its sleeve, the Morgan Stanley win seems like a bonus for Goldman's case. So does a description of Jones' handling of perhaps her highest-profile case -- the prosecution of WorldCom executive Bernard Ebbers -- in a 2005

New York Times


"Judge Jones, who is neither a showboat nor a browbeater, kept the proceedings on track with swift rulings and an even-tempered manner that diffused friction," the


court reporter asserted.

Steve Lee, a forensic accountant who specializes in fraud and white-collar crime, worked with Jones on another benchmark case that she handled, and describes her much the same way. Lee encountered Jones in working on


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antitrust lawsuit against


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, which led to a $2.75 billion settlement. Lee says she came off as "one of the smartest, savviest judges on the federal bench" who is "faithful to the law."

"I think it highly unlikely that Judge Jones will be moved by public statements from either side, outrage and disgust over inappropriate emails, or by a general societal repulsion with the greedy-looking bonuses," he said in an email message.

Given the political environment, and recent showboating of Jones' colleague Jed Rakoff in a case against

Bank of America

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, Jones' demeanor may play in Goldman's favor as well.

Jones began honing that smart-and-savvy reputation the day after Christmas in 1995, when she took her place on the bench at 500 Pearl St. in Lower Manhattan. The 63-year-old Inglewood, Calif., native migrated East in her early 20s to attend Temple University's law school in 1973.

She's stayed here ever since, with much of her professional career geared toward reining in organized crime for the Justice Department, U.S. attorney and district attorney's offices. She also taught at Fordham University for the decade leading up to her federal court appointment. (

contacted Jones' deputy, Lauren Blackford, for an interview with the judge, but didn't receive a response in time for publication. Goldman declined to comment.)

In total Jones has served at the courthouse in Lower Manhattan for more than 30 years now. Her resume evokes a law-and-order, sling-up-the-crooks,

Jack McCoy archetype. Her Clinton-era appointment suggests a predisposition for Obama's populist agenda.

But those who have worked with her say that's far from the truth. Instead, they say, what a defendant has to worry about is whether it did something untoward, or whether the prosecution can prove convincingly that it did. Looking at the SEC's evidence against Goldman Sachs so far, the Wall Street defendant appears to have a decent chance of success.

The SEC accused Goldman of misleading a set of investors who were betting that the subprime housing market would remain robust. Those investors were the long side of a "synthetic" collateralized debt obligation. A hedge fund,

Paulson & Co.

, took the other side of the trade, betting that the value of those securities would plummet.

A third-party firm was responsible for selecting the securities that would be involved in the deal. However, Paulson gave suggestions on which securities he preferred, some of which were included in the CDO.

The SEC says that Goldman didn't do a good enough job of telling long investors that the short side had a hand in picking the assets. It also alleges that Goldman and its trader, Fabrice Tourre, purposefully misled the third-party firm, ACA, about Paulson's position. It hasn't yet cited any evidence to that effect, and Tourre, when testifying before Congress last week, flatly denied lying.

Unless the SEC has a evidentiary rabbit hiding in its hat, its case looks pretty weak from a legal standpoint, according to experts.

"From the moment the story broke, people were polarized without fully knowing the facts," says Ron Geffner, a lawyer with Sadis & Goldberg. "People either attacked Goldman, presuming them to be guilty or defended Goldman, yet we're still in the process of obtaining information."

"If you want to psychoanalyze it, you have the SEC, which missed Madoff, and they need a win," adds financial historian Bruce Weindruch, who is founder and CEO of

The History Factory

. He was referring to Ponzi schemer Bernard Madoff, who swindled millions of dollars from investors over several years. The SEC missed him, despite repeated warnings from suspicious market participants.

It doesn't help that the SEC recently got its hide handed to it by another federal judge, Jed Rakoff, in its case against

Bank of America

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. The SEC had proposed a $33 million settlement with the bank, regarding its handling of the Merrill Lynch acquisition.

Bank of America wasn't required to make any other changes or admit to wrongdoing. Rakoff blasted the SEC's settlement as inadequate, and after several months of wrangling, the regulator got a

begrudging approval of a $150 million settlement to be distributed to shareholders, along with several other changes to the way the bank handles disclosures and corporate governance.

Still, the resolution of the case represented the agency's first post-Madoff black eye. Many think the agency is using Goldman as a scapegoat to boost its reputation and help the Obama administration pass a wide-ranging financial-reform bill, despite having scrawny evidence. The more serious accusation is that, while investigating Goldman's piddling Abacus deal, the SEC is ignoring the bigger issue: That the entire banking and shadow financial industry was engaged in this type of behavior, unmonitored, for several years.

"It doesn't appear that the government or Congress want to get at the truth," says Geffner of Sadis & Goldberg. "It seems like they want to bring all of the country's anger onto one institution. Although Goldman could've done things better, it seems to be the firm that everybody loves to hate. There's a presumption of guilt by presumption of the wealth created in Goldman, and as far as protecting the public - that's really not where any prosecution has gone on."

Judge Jones may not be able to change the tide of public opinion, but she may be able to decide this particular prosecution in a fairer manner than Goldman has received to-date.

-- Written by Lauren Tara LaCapra in New York