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Judge asks SEC to explain Bank of America actions

Judge asks SEC to explain Bank of America actions

A judge on Tuesday ordered federal regulators to explain why they didn't investigate whether executives at Bank of America Corp. misled shareholders about bonuses paid by Merrill Lynch.
U.S. District Judge Jed Rakoff in Manhattan has delayed approving the bank's proposed $33 million settlement with the Securities and Exchange Commission over the bonus affair, which arose after Bank of America agreed to buy Merrill for $50 billion in a hastily arranged deal last September.
The SEC said in a filing Monday that the evidence it gathered "did not support additional corporate charges against Bank of America or charges against" individual executives stemming from the bonus payouts.
At issue is Bank of America's failure to disclose the bonuses to shareholders, the SEC said. The payment of the bonuses itself didn't violate the securities laws.
Merrill ended up paying $3.6 billion in bonuses last year, even though it lost $27.6 billion that year, a record for the firm.
The SEC said it wasn't possible to establish whether bank executives knowingly violated securities laws because the terms of the bank's takeover of Merrill _ including the bonus payments _ were laid out in documents prepared by outside attorneys for the two companies.
The attorneys were mainly responsible for drafting the Bank of America disclosure filings and Bank of America didn't waive the attorney-client privilege, the commission said.
Rakoff, in his order Tuesday, said the SEC's arguments seem "at war with common sense."
"It also leaves open the question of whether, if it was actually the lawyers who made the decisions that resulted in a false (disclosure) statement, they should be held legally responsible," Rakoff wrote.
He said that because it is Bank of America's attorney-client privilege that is at issue, he also wants the bank to provide its views on the subject.
Rakoff gave the two parties until Sept. 9 to file the next round of legal briefs so that he can decide whether to approve the settlement. After a period of review, Rakoff could rule or order additional hearings.
SEC spokesmen didn't immediately return a call seeking comment; a Bank of America spokesman had no immediate comment.
The SEC and Charlotte, North Carolina-based Bank of America defended the settlement as fair in their filings Monday.
The bank suggested that shareholders should have already known about the bonuses given the media attention surrounding its takeover of Merrill.
"There was no false or misleading statement or omission" in a proxy statement for voting shareholders, Bank of America said. In addition, the bank noted that Merrill disclosed the size of its bonus pool when it reported financial results earlier in 2008.
The SEC maintained that the proposed settlement is "fair, reasonable, adequate and squarely in the public interest."
The $33 million proposed fine "fully takes account of the seriousness of the misconduct and the need for deterrence, while giving due consideration to the protection of innocent shareholders," it said.
The bank, without admitting or denying the allegations, agreed to pay the fine to settle charges that it misled investors about Merrill's plans to pay bonuses to executives even as it prepared to report billions in losses. Those losses affected Bank of America's bottom line after its takeover of the troubled investment bank was completed.
Bank of America is one of the biggest U.S. banks as well as one of the largest recipients of aid under the government's financial bailout program, getting $45 billion. The SEC said in its filing that the government's capital investment in the bank doesn't change the standard the agency applied in arriving at the $33 million penalty.
Bank of America has said that taxpayer money would not be used to pay the settlement.


Updated : 2021-03-05 21:19 GMT+08:00