BofA, SEC Defend Proposed Settlement

Two weeks ago, U.S. District Judge Jed Rakoff refused to approve the settlement until both sides provided more facts (see “Judge Delays BofA’s Settlement with SEC”). Among other things, the judge questioned whether the proposed penalty amount was enough.

As requested, BofA and SEC each submitted court filings defending the settlement. In its filing, the SEC defended the $33-million fine, outlining the factors it uses to assess whether to impose a fine on a corporation and how much it should be. The Commission concluded that “the proposed penalty is an appropriate sanction for Bank of America’s proxy disclosure violation, because it strikes an appropriate balance among many relevant factors.”

The SEC contended that the proposed penalty is consistent with a settlement with a $37-million fine given to Wachovia in 2004 because of inadequate disclosures during its merger with First Union Corp. The Commission said the Wachovia case is the most comparable prior precedent involving a proxy violation case against a large financial institution.

In its court filing, BofA continued to defend itself over the bonuses paid to Merrill Lynch. The bank claimed “it was widely understood from Merrill Lynch’s public disclosures that Merrill Lynch intended to pay multi-billions of dollars in year-end incentive compensation.” The bank then cited several news outlets that reported about the bonuses preceding the shareholder vote. 

BofA said: “Given the significance that year-end compensation has for Wall Street, had anyone concluded (erroneously) from the Proxy Statement or the Merger Agreement that Merrill Lynch did not intend or was not allowed to pay year-end bonuses, that would have been front-page news. The absence of any such media report speaks volumes.”

BofA concluded that the settlement should be approved because had the issue gone to court, the bank says it would have been able to defend itself successfully.