By Jonathan Stempel

NEW YORK (Reuters) - Federal investigators don't
try to bring wrongdoers to justice by concocting "half-baked,"
"sweetheart" deals in search of a judicial "rubber stamp."

But in the last year, U.S. judges have accused regulators
of doing just that, as they attacked settlements of probes into
three big lenders: Bank of America Corp last September,
and Citigroup Inc and Barclays Plc this week.

Such criticism can be viewed as blows to the U.S.
Securities and Exchange Commission, which struck the first two
settlements, and the U.S. Department of Justice, responsible
for the Barclays accord.

Yet the criticism may also reflect a growing demand by the
public that responsible parties be brought to bear, as concern
grows that a sputtering recovery from the worst economic crisis
in decades might flame out.

"It's obvious why this is happening," said Elizabeth
Nowicki, an associate professor at Tulane University Law School
and former SEC lawyer. "More attention is focused on the
egregious nature of issues regarding financial fraud and
improper business dealings. Due to the economy, we're seeing
more of this on the front pages. It's not that judges weren't
doing their jobs before, but judges are people too."

The inability of the government to hold top executives
accountable -- unlike in the accounting scandals that once
enveloped Enron Corp and WorldCom Inc -- may also be a factor.

"Judges and the public are upset that we are two years past
the financial crisis, and we cannot identify a single financial
executive who has been prosecuted" successfully, said John
Coffee, a professor at Columbia Law School. "That may be where
the tide is shifting, toward a greater need for regulators to
at least place some of the costs on individuals. It gives you
much greater deterrence."


At a Tuesday hearing, U.S. District Judge Emmet Sullivan
called Barclays' agreement to pay $298 million to resolve
criminal charges that it violated trade sanctions by dealing
with banks in Cuba, Iran, Libya, Myanmar and Sudan a
"sweetheart deal."

The judge set another hearing for Wednesday, but not before
questioning why the British bank should get a "deferred
prosecution" agreement when an ordinary American who robs a
bank would not. "That should concern the government," he said.

A day earlier, U.S. District Judge Ellen Segal Huvelle at a
hearing refused to approve the SEC's $75 million accord with
Citigroup to resolve civil charges that the bank -- prior to
getting a series of federal bailouts -- understated its
exposure to subprime mortgages by about $40 billion in 2007.

"Why would I find this fair and reasonable?" Huvelle said,
as reported by The Wall Street Journal. "You expect the court
to rubber-stamp, but we can't." She also set another hearing.

Perhaps most memorably, U.S. District Judge Jed Rakoff last
September rejected a $33 million SEC accord over charges that
Bank of America hid $15.8 billion of losses and $3.6 billion of
bonuses at Merrill Lynch & Co, which it was acquiring.

He called that a "contrivance" to let the SEC expose
wrongdoing and the bank claim it was coerced into settling, at
the expense of shareholders and the truth. He later approved a
$150 million accord, but called even that "half-baked justice
at best."

To be sure, not all settlements endure such judicial
skepticism. Case in point: the SEC's $550 million accord last
month with Goldman Sachs Group Inc, which won quick
approval. A Goldman vice president still faces civil charges.

Yet in connection with these settlements, just two top
executives have been punished and both, from Citigroup, agreed
to pay just $180,000 combined. The end result to some:
shareholders appear to be paying for the faults of management.

Moreover, relative to the banks' sizes, the fines are, for
the most part, small.

"It makes the violation a cost of doing business: we'll
skirt to the edge of the law, and if we get caught, we'll pay,
and if we don't, we'll make money," said Peter Henning, a law
professor at Wayne State University in Detroit. "I don't think
companies think that, but it turns fines into an economic
decision rather than a means of deterrence."


There remains a risk that parties may resist settling if
regulators play hardball in settlement talks. "It will make it
harder to negotiate a settlement, but it will make a settlement
meaningful rather than meaningless," Coffee said.

Nowicki took an opposite view, saying the alternative to
settling for defendants could be worse.

"Judges who draw a line in the sand are helping the
agencies," Nowicki said. "Defendants will realize the agencies
are going to need to set the bar higher for settlements. Going
to a jury, half of which might be unemployed, is most assuredly
not a better option."

Henning said parties to settlements can boost their chances
for approval by making clear what drove their decision-making.
Even filing documents with the court under seal could help, he
said, even if the public does not learn all the details.

"Judges don't want to be rubber stamps," Henning said.
"Judges want transparency for the court, not 'sign here."'
(Reporting by Jonathan Stempel in New York; Editing by Richard