Thank you, Judge Jed S. Rakoff*

Judge Rejects Settlement Over Merrill Bonuses

By LOUISE STORY
New York Times
Published: September 14, 2009

A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.

The judge said that Bank of America “materially lied” in shareholder communications about the bonuses.

The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan.

The ruling directed both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1.

The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.

The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure.

“It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” the judge wrote.

In a statement, the S.E.C. said on Monday: “As we said in our court filings, we believe the proposed settlement properly balanced all of the relevant considerations. We will carefully review the court’s most recent order.”

A spokesman for the bank, Lawrence Di Rita, said the bank disagreed with the judge’s ruling.

“Bank of America believes the facts demonstrate that proper disclosure was made to shareholders about Merrill bonuses,” Mr. Di Rita said in an e-mail message. “We are prepared to prove that through litigation. We will consider all our legal options over the coming days.”

The judge also criticized the S.E.C., which has been trying to step up the effectiveness of its investigations unit. The judge quoted Oscar Wilde’s “Lady Windermere’s Fan” in the end of his ruling to say that a cynic is someone “who knows the price of everything and the value of nothing.”

The proposed settlement, the judge continued, “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.” [cont.]




*From the blog AboveTheLaw comes this account of Our Hero Judge at the 2008 Southern District of New York's "Courthouse Follies":

Showstopping performance: A boisterous musical number by Judge Jed Rakoff, Judge Laura Taylor Swain, Magistrate Judge Ronald Ellis, and Chief Magistrate Judge Lisa Margaret Smith. Sung to the tune of "There Once Was a Man" from Doris Day's "The Pajama Game," with additional lyrics and dialogue by Judge Rakoff, the act featured Judge Rakoff in a blond fright wig...