Judge Slams Proposed Settlement Between Bank of America, SEC

The judge presiding over the SEC’s lawsuit against Bank of America denied the proposed $33 million settlement, saying the settlement was “neither fair, nor reasonable, nor adequate”, in part because the Bank’s “innocent shareholders” would be picking up the tab. 

In an order that calls the proposed fine “trivial” and quotes Oscar Wilde, U.S. District Court Judge Jed Rakoff could not be more clear in expressing his displeasure. 

The parties’ submissions to the Court, the judge said, “leave the distinct impression that the proposed [settlement agreement] was a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry…”

The ruling comes after the August hearing when Rakoff demanded more information from the parties, resulting in hundreds of pages of briefing that clearly failed to satisfy the Court.  Rakoff scheduled a trial for February 1, 2010. 

The order reinforces the judge’s doubt earlier stated doubt that $33 million is a fair pay-off for the $5.8 billion in Merrill Lynch bonuses Bank of America allegedly failed to properly disclose to shareholders. 

At the hearing and in today’s memorandum opinion, the judge expressed frustration that Bank of America, who has repeatedly stated its proxy statement was not misleading, has so far failed to provide specifics.

From the opinion:  [I]n all its voluminous papers protesting its innocence, Bank of America never actually provides the Court with the particularized facts that the Court requested, such as precisely how the proxy statement came to be prepared, exactly who made the relevant decisions as to what to include and not include so far as the Merrill bonuses were concerned, etc.

Rakoff does not let the SEC off the hook, either, noting that although the S.E.C. concedes “its normal policy in such situations is to go after the company executives who were responsible for the lie,” it claims it cannot do so in this matter because company lawyers made the decisions concerning the disclosures.  If that’s the case, Rakoff wrote, why not go after the lawyers? 

Whether this case will actually go to trial remains to be seen, but it is highly unlikely the Court will approve any future settlement agreement without either proof of exactly what happened.

Here’s the judge’s order:



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