A $33 million settlement between Bank of America and the Securities and Exchange Commission “does not comport with the most elementary notions of justice and morality,” a federal district judge ruled today.
The settlement dealt with bonuses Bank of America paid to Merrill Lynch executives just before the bank took over Merrill last year.
The ruling by Judge Jed. S. Rakoff forces the SEC to go back to the drawing board on the deal. The commission can renegotiate the settlement, take the case to court or drop the case.
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 New York Times reported.
The judge focused much of his criticism on the fact that the fine imposed by the SEC would be paid by the bank’s shareholders -- the exact people who were injured by the original deal.
“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.
Bank of America maintains that it did nothing wrong in its disclosures.
The judge also criticized the SEC, which has been trying to step up the profile of its investigations unit, which has taken some very public scrutiny following reported missteps in high profile cases like the Bernard Madoff ponzi scheme.
In his ruling, the judge wrote that the settlement between the SEC and BofA "Suggests a rather cynical relationship between the parties: the SEC 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.”
This is not the first time Judge Rakoff has ruffled feathers in the business world. In 2003, for example, he refused to approve what he saw as a low settlement the SEC. had negotiated with WorldCom, the phone company that collapsed in an $11 billion accounting fraud, the Times reported reported.