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Securities Law

Judge Rejects SEC Deal with Bank of America, Asks Why Lawyers Weren’t Charged

Posted Sep 14, 2009 11:44 AM CDT
By Debra Cassens Weiss

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A federal judge has refused to approve a $33 million settlement between Bank of America and the Securities and Exchange Commission amid questions about culpability by lawyers and executives.

U.S. District Judge Jed Rakoff of Manhattan said the deal “does not comport with the most elementary notions of justice and morality,” the New York Times reports. The settlement would have resolved allegations that Bank of America misled investors about plans to pay bonuses to Merrill Lynch executives before acquiring the company.

Rakoff said it was unfair for shareholders to have to bear the brunt of the settlement when they were the ones who were injured, according to the Times account.

Rakoff noted that the SEC contends misleading proxy statements were apparently prepared by lawyers for Bank of America and Merrill. “But if that is the case, why are the penalties not then sought from the lawyers?” Rakoff wrote in the order (PDF posted by the Wall Street Journal). “And why, in any event, does that justify imposing penalties on the victims of the lie, the shareholders?”

The proposed settlement “suggests a rather cynical relationship between the parties," Rakoff wrote. "The SEC 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.”

Rakoff had held up the deal in late August, asking the SEC for a better explanation why executives, and possibly lawyers, weren’t in the SEC’s targets. He set a Feb. 1 trial date on the SEC allegations, the Wall Street Journal (sub. req.) reports.

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