A U.S. federal judge has reprimanded the Securities and Exchange Commission by throwing out a $33 million settlement between the regulator and Bank of America, calling the agreement “cynical” with a trial now likely next year. Judge Jed Rakoff said the agreement – to settle allegations that BofA made misleading statements to shareholders – was a “contrivance designed to provide the SEC with the facade of enforcement”, said the Financial Times. He said the original settlement failed to identify individuals responsible for the alleged misstatements. And, in the proposed settlement, the SEC claimed BofA – in the November prospectus describing the acquisition of Merrill Lynch– misled shareholders when it said that no large bonuses would be paid to Merrill executives prior to the closing of the merger without BofA’s consent. But there was a side agreement to the original merger document, struck in mid-September 2008, allowing Merrill to pay up to $5.8 billion in bonuses. The SEC alleged that the side agreement, not included in the prospectus, amounted to a misleading statement on the part of BofA. The bank agreed to settle the action for $33m last month, without admitting any liability – a standard component of SEC settlements. Under Rakoff’s ruling, the SEC will have to prove its allegations at a trial. The judge said BofA’s reliance on $45 billion in taxpayer funds gave the matter additional importance. He gave both parties until last week to persuade him that the $33 million settlement should be accepted. Meanwhile, the New York Attorney General’s office is preparing charges against several high-ranking Bank of America executives over the bank’s alleged failure to disclose details about its acquisition of Merrill Lynch, said Associated Press. Attorney General Andrew Cuomo’s office is likely to file civil charges against the executives over their role in failing to alert shareholders to mounting losses as well as accelerated bonus payments at Merrill.
Court Rejects SEC’s BoA Settlement
Judge Jed Rakoff said the agreement – to settle allegations that BofA made misleading statements to shareholders – was a “contrivance designed to provide the SEC with the facade of enforcement”.
September 15, 2009