Outraged Judge Scuttles SEC-Bank of America Bonus Settlement

August 7, 2009

(ChattahBox)—Judge Jed Rakoff of the U.S. District Court in Manhattan took an unusual step on Wednesday, by refusing to approve a $33 million court settlement reached between the SEC and Bank of America. Judge Rakoff expressed concern for the taxpayers, with the bank receiving $45 billion of government Tarp funds. Additionally, Judge Rakoff wanted to ensure that the egregious actions of Bank of America were not hidden from public scrutiny in the settlement.

The SEC sued Bank of America for misleading its shareholders about billions of dollars in executive bonuses paid by Merrill Lynch right before the merger with Bank of America, as Merrill was posting record losses. The huge bonus payout was withheld from Bank of America shareholders when they voted to approve the merger.

Public proxy statements falsely claimed that Merrill agreed not to award executive bonuses before the merger, when in fact Bank of America agreed to allow pre-merger bonus payouts of up to $5.8 billion. Merrill actually paid out $3.6 billion in bonuses. After the merger, Merrill’s losses overwhelmed Bank of America, forcing it to return to the Fed for a $20 billion bailout, in addition to the previous $25 billion it received.

When Bank of America shareholders became aware of the bonus deception, they became enraged, leading the SEC to sue Bank of America for making misleading and false statements to its shareholders.

The SEC lawsuit noted how Bank of America essentially allowed Merrill to loot its company of equity before the merger: “The $5.8 billion in discretionary bonuses that Bank of America authorized Merrill to pay constituted (i) nearly 12 percent of the $50 billion that Bank of America had agreed to pay to acquire Merrill; (ii) nearly 30 percent of Merrill’s total stockholder equity; and (iii) over 8 percent of Merrill’s total cash and cash equivalents as of December 31,2008.”

Judge Rakoff understandably expressed his outrage over the actions of both Bank of America and Merrill, writing in his order, “Despite the public importance of this case, the proposed consent judgment would leave uncertain the truth of the very serious allegations made in the complaint.”

When Bank of America’s executives, including chief executive at the time, Kenneth Lewis projected Merrill losses of $2 billion just two days before the merger, the executives withheld that information from shareholders as well.

Meanwhile, the parties in the lawsuit, the SEC and Bank of America, are scheduled to appear before Judge Rakoff in an August 10 hearing to answer the judge’s questions, before he makes a final determination whether to sign off on the settlement agreement.

SEC regulators plan to continue their investigation into the deceitful actions leading up to the Bank of America-Merrill merger.



One Response to “Outraged Judge Scuttles SEC-Bank of America Bonus Settlement”

  1. Old Man Dotes on August 7th, 2009 12:32 pm

    You’ll notice that none of the executives of either Merrill-Lynch nor BofA are suffering from unemployment nor are they desperate for money to support themselves and their families.

    Justice demands that the Board of Directors of BofA and all executives of both firms who held their positions during the period under investigation should be stripped of all assets and barred from ever holding a directorial position in any publicly-traded firm again.

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