Wednesday, August 12, 2009
Lawyers for the Securities and Exchange Commission and Bank of America were caught off guard on Monday when a federal judge refused to approve a $33 million settlement over BofA’s attempt to hide the payment of billion-dollar bonuses from bank shareholders. Judge Jed Rakoff demanded to know how the SEC decided on such a small fine when the bonuses, paid to executives of BofA’s new acquisition, Merrill Lynch, totaled about $3.6 billion.
Rakoff asked SEC attorneys if Bank of America “misled the shareholders, as you assert about a multi-billion dollar matter, isn’t there something strangely askew in a fine of $33 million?” He added: “[I]t is very difficult for me to see how the proposed settlement . . . is remotely reasonable.”
The judge demanded to know what BofA CEO Kenneth Lewis and former Merrill Lynch chief John Thain knew about the effort to conceal the bonuses, and he expressed concern whether BofA officials planned to use some of the $45 billion Bank of America received from the federal bailout out funds to pay the SEC fine. Bank attorneys tried unsuccessfully to convince Rakoff that such a thing would not happen, even though they previously said the bank could not realistically “segregate” Treasury dollars from other funds already held by BofA to cover the penalty.
Rakoff ordered the two sides to return on August 24 to provide him with more details about the settlement.
-Noel Brinkerhoff
Judge Delays Bank of America's Settlement (by Zachary A. Goldfarb and Tomoeh Murakami Tse, Washington Post)
Bank of America faces More Bonus Embarrassment (by Jonathan Stempel, Reuters)
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