Judge Rakes SEC and BoA Over the Coals for Their Proposed Settlement Agreement
President Obama gave a speech marking the one-year anniversary of the Lehman Bros. collapse in Lower Manhattan today and expressed his desire for stricter regulation of the financial industry.
Just up Broadway Ave., at the District Court for the Southern District of New York, however, Judge Jed Rakoff rejected a proposed settlement agreement between the Securities and Exchange Commission and Bank of America, and upbraided the SEC for its "cynical" handling of the case.
The SEC brought suit against BoA last year, alleging that the bank lied to its shareholders on a proxy statement regarding BoA's merger with Merrill Lynch. The complaint accused BoA of telling shareholders that Merrill would not give its executives bonuses, when in fact BoA had agreed to allow Merrill to pay its executives up to $5.8 billion in such bonuses.
On the same day that the complaint was filed, the parties proposed a settlement to the court whereby the court would enjoin BoA from making any further false statements and BoA would pay a $33 million fine to the SEC.
But Judge Rakoff felt that the proposal was "neither fair, nor reasonable, nor adequate." Rakoff focused in particular on the fact that the victims of BoA's misbehavior, the shareholders, would end up paying the fine after they had already been tricked into a $5.8 billion merger.
Instead, Rakoff suggested, the SEC should go after the lawyers who approved the proxy language, and pointed out that the SEC's failure to do so violated the agency's own stated policies.
In the final analysis, Judge Rakoff wrote:
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.So you have President Obama on Wall Street beating the drum for aggressive financial oversight while a federal judge in the Civic Center simultaneously chides a federal agency for not following its own policies regarding enforcement.
And they wonder why some people question the government's competency.
Judge Rejects SEC Deal with Bank of America, Asks Why Lawyers Weren't Charged (ABA Journal)
Let's Go to Trial: Rakoff Slams BofA, SEC, Rejects Pact (WSJ Law Blog)