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It seemed everyone was ready to put the flap over the Merrill Lynch bonuses behind them. But not Federal District Court Judge Jed S. Rakoff.
The judge has just thrown out a proposed $33 million settlement of SEC allegations that BofA misled shareholders about bonuses paid to employees of Merrill Lynch in December 2008, just before the North Carolina bank was to purchase the Thundering Herd in a $50 billion deal.
The judge was less than amused with the proposed settlement. In a blistering 13-page ruling released this afternoon, Rakoff turned to a certain Irish writer to drive home his point:
“Oscar Wilde once famously said that a cynic is someone 'who knows the price of everything and the value of nothing'?..the proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth. Yet the truth may still emerge.
While the SEC had couched its allegations against BofA in legalese in previous court documents, Rakoff states plainly and repeatedly that the bank “lied” to its shareholders that it had agreed to $5.8 billion of bonuses to Merrill executives in 2008 , a year in which Merrill recorded a huge loss, without seeing shareholder approval.
Rakoff says fining the company would unfairly hurt its shareholders, who were already “blatantly” lied to. “This proposal to have the victims of the violation pay an additional penalty for their own victimization was enough to give the Court pause,” he said. And he called “absurd” the SEC's reasoning that it didn't matter that the fine was penalizing shareholders because in the end it would send a strong message not to the bank.
Why could the SEC fine BofA the company and not any of its executives, he wondered, sloughing off the SEC’s argument that the executives can't be cited because they relied on their lawyers to devise the disclosure statements. “Why didn't the SEC charge the lawyers ?” Rakoff asked.
Judge Rakoff has dealt the agency another black eye, coming just a week after the SEC was blasted for its failure to stop or detect Bernie Madoff's giant ponzi scheme.
Still, BofA may face a bigger problem. At the very least, there will be a trial on the civil charges against BofA, which Rakoff has scheduled for Feb. 1. That means another treasure trove of emails between company executives will be unearthed and BofA is in for another public airing of an ugly chapter in the bank's history that just won't end.
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How much did ‘our friend’ the judge save a shareholder who owns 1,000 shares? $3.82. Thanks, I’ll be able to buy a cup of coffee when the market price jumps .0038 today.
How on earth does this useless and incompetent management team keep their jobs?
Simply politically amazing. Hopefully, the board will be sued for their incompetence and failure to protect shareholders. This SOBs need to be sued PERSONALLY.
Ken Lewis IS Liar!! But WHY??? He Shott Himself In The Foot??
bravo! at least there is someone who is not going to be fooled by the settlement. if SEC really (really?) want to set an example for wrong doings, it should have gone to the trial. Some people have lied in this fiasco, so we need to find out and they need to pay a price. As to SEC, they couldn’t even catch Madoff despite of all the clues (or do they really want to?), what else can they do? that’s the problem of policing the wall street with bunch of lawyers, I bet the staff at SEC can not even explain what a CDS is..(Criminal -Dude-Stupid!)
Rakoff is a brilliant jurist whose opinions, especially this one, are well crafted and right. All the miscreants–the executives at ML and B of A who were in place in the runup to the merger, regardless of their repsonsibilities, should have the bonus clawed back and given to the US Treasury. Lewis should be hoisted on a very sharp petard for his poor, self-serving “communications” policy on the merger, as should the vunderkind called Thaine. The boards of directors of both companies should be forced to put money in the taxpayer pot, too. Last but not least, the negotiation and settlement blessed by M. Schapiro at the SEC says a lot about what we can expect from her. Certainly not financial services reform. The SEC should not be allowed to bleed the taxpayers to make its own incompetence look harmless. The SEC is a regulatory agency gone very bad with extremely ineffective leadership in the Bush administration and now. Obama needs to can them.
Deal Journal is an up-to-the-minute take on the deals and deal makers that shape the landscape of Wall Street, including mergers and acquisitions, capital-raising, private equity and bankruptcy. In short, wherever money changes hands. Deal Journal is updated throughout each trading day with exclusive commentary, analysis, data, news flashes and profiles. The Wall Street Journal's Michael Corkery is the lead writer, with contributions from other Journal reporters and editors. Send news items, comments and questions to deals@wsj.com.
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