A New York federal judge has rejected a proposed settlement between Bank of America and the Securities and Exchange Commission regarding $5.8 billion in bonuses to Merrill Lynch executives. In August, the SEC charged that Bank of America lied to its shareholders in November when it sought their approval to complete its $50 billion purchase of Merrill. The SEC said Bank of America told shareholders that Merrill employees wouldn’t get bonuses without its consent. However, the huge bank had already authorized payments of up to $5.8 billion despite mounting losses of $15 billion at Merrill in the fourth quarter. Bank of America had agreed to settle the case for $33 million.
U.S. District Judge Jed Rakoff, in his decision, said the proposed settlement was “neither fair, nor reasonable, nor adequate.” Judge Rakoff also said that if Bank of America “is innocent of lying to its shareholders, why is it prepared to pay $33 million of its shareholders’ money as a penalty for lying to them?” Judge Rakoff also came down hard on the SEC, stating: “The proposed consent judgment was a contrivance designed to provide the SEC with the facade of enforcement.” Judge Rakoff also said that the settlement would effectively punish shareholders twice, stating:
The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money in order to better assess the quality and performance of management is absurd.
I totally agree with Judge Rakoff’s decision to reject this settlement. The judge directed Bank of America and the SEC to prepare for a trial by February 1st.
Source: USA Today
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