Securities Law

$150M SEC Pact with BofA Still Low, Judge Says. Will Case Go to Trial?

A federal judge left open the possibility that he could, for a second time, reject a settlement between the Securities and Exchange Commission and Bank of America over the bank’s controversial takeover of Merrill Lynch.

Such a rejection by U.S. District Judge Jed S. Rakoff, this time of a proposed $150 million accord, could send the case to trial.

The settlement would resolve two SEC actions that accuse the bank of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses in 2008 and of keeping shareholders in the dark about “extraordinary” losses Merrill sustained in the two months before the merger, the New York Law Journal reports.

At a hearing Monday in Manhattan, Rakoff asked pointed questions to a “phalanx of lawyers” from the SEC and Bank of America, the New York Times reports.

Last year, Rakoff rejected a $33 million settlement as too low. And, according to the Times, Rakoff thought $150 million fell short too. He reportedly suggested that $300 million or $600 million would be more appropriate.

Rakoff, however, indicated that overall the settlement was positive and more meaningful than the earlier one he’d rejected. The judge did raise questions about the role attorneys played in advising the bank on whether it was culpable or negligent, according to the New York Law Journal.

In particular, Rakoff wants to know more about Bank of America’s decision to fire its general counsel, Timothy J. Mayopoulos, in the middle of the merger. The judge said he wants to personally study the record to see if there is any indication of intent on the part of bank executives to mislead shareholders, the Times reports.

Rakoff is expected to make a decision on the settlement by Feb. 19.

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