Anyone still waiting for justice with respect to the role that large banks played in the financial crisis had to be disappointed in a New York appeals court's ruling in a case involving a settlement agreement between Citigroup Global Markets and the Securities and Exchange Commission.

To recap, in late 2011, Jed Saul Rakoff, a United States District Judge for the Southern District of New York, rejected a $285 million dollar settlement reached by the SEC and Citi in a case involving the fraudulent sale of mortgage securities in the period before the financial crisis. Rakoff rejected the ruling because he felt it let Citi off hook with what he saw as a slap-on-the-wrist fine and without having to admit wrongdoing. The SEC and Citi appealed the ruling and on Wednesday, the 2nd Circuit Court of Appeals ruled that Rakoff did not have the authority to reject the settlement.

In doing so, the Appeals Court has effectively shackled the only institution left that might be able to act to restore the rule of law in the financial services marketplace. Its ruling means that the lower court has to accept settlements set forth by the SEC -- even if the court views the settlements as inadequate.

Worse, it's going to give the financial firms themselves even more influence over the regulatory process.

In the Citi case specifically, the damage calculation -- $285 million -- is much smaller than it should have been because the SEC has been captured by the industry. If financial firms know that courts can't step in to block settlements then what's to stop them from using whatever resources are available to them to ensure that industry-friendly regulators are placed on the SEC commission? 

The Appeals Court's ruling sends the signal that you can commit fraud and help drive the U.S. into recession but still keep your share of the out-sized and fraudulently obtained gains. 

The recent global financial crisis cost U.S. households $17 trillion dollars, according to the Treasury Department. A loss of this magnitude suggests that the SEC is incapable of carrying out its mission to "protect the public." Under these circumstances, with the SEC captured by the financial service industry, only a court is in a position to determine what is fair. To do so, lower courts require the ability to act.

William Michael Cunningham is an economist in Washington, D.C. He filed a friend-of-the-court brief in both the lower court and the Court of Appeals in this case.