WASHINGTON - -A federal judge in New York Monday rejected a $33 million settlement between the Securities and Exchange Commission and Bank of America, throwing into doubt the future of one of the government's chief cases against a firm charged with wrongdoing in the financial crisis.
Using biting language, Judge Jed Rakoff accused the SEC, Wall Street's top regulator, of trying to nab a quick victory against a big bank while concealing the facts of the wrongdoing the agency alleges. He attacked Bank of America's top executives for allegedly trying to protect themselves at the expense of the company's shareholders. Most of all, Rakoff suggested that the SEC and Bank of America are working together to try to make the case go away even if it "victimizes" the shareholders who would have to pay the $33 million settlement.
"This case suggests a rather cynical relationship between the parties: 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," Rakoff wrote. "And all this is done at the expense, not only of the shareholders, but also of the truth."
Rakoff has ordered that the case move to trial early next year. The SEC could also choose to drop it, renegotiate the settlement or possibly appeal.
The case centers on whether Bank of America hid from shareholders important details about its plans for Merrill Lynch, the troubled Wall Street firm it agreed to acquire last fall in a hastily arranged deal aimed at containing further damage to the financial system. Early last month, the SEC claimed that Bank of America failed to disclose to shareholders who were to vote on the deal that it had allowed payment of billions of dollars in bonuses to Merrill Lynch employees. Bank of America agreed to pay $33 million to settle the charges.
But Rakoff, who must sign off on the settlement, expressed immediate skepticism, demanding additional information from the SEC and Bank of America and summoning their lawyers to the court.
Rakoff wanted to know why the SEC didn't charge individual executives at Bank of America and Merrill Lynch who oversaw the allegedly faulty disclosures. The SEC said that Bank of America's executives relied on advice from their lawyers, and there was no evidence they intended to mislead shareholders. Bank of America, meanwhile, said it was settling to avoid the hassle of an extended, expensive case against one of its regulators. It claimed that it had done nothing wrong.
