ComplianceFebruary 22, 2010

SEC-BofA Settlement Receives Judge’s Approval

A long-brewing regulatory conflict ended today as a U.S. District Judge approved Bank of America’s (BofA) $150 million settlement with the Securities and Exchange Commission (SEC).

Reported by Alison Cooke Mintzer

However, the decision was made with criticism, as Judge Jed Rakoff wrote: “Given the somewhat tortured background of these cases and the difficulties the motion presents, the Court is tempted to quote the great American philosopher Yogi Berra: ‘I wish I had an answer to that because I’m getting tired of answering that question.’ However, after full consideration, the Court reluctantly grants the motion”

The settlement encompasses two cases brought against BofA by the regulator. The first, which was set to go to trial in March, charged the bank with misleading investors over $5.8 billion in bonuses paid to Merrill Lynch executives before its acquisition by BofA (see “SEC Charges BofA $33M for Violations Related to Merrill Deal”). The second alleged that BofA failed to disclose extraordinary financial losses (ultimately amounting to a net loss of $15.3 billion) at Merrill Lynch prior to a shareholder vote to approve the merger (see “SEC Files another Suit against BofA”). The SEC had wanted to amend the original compliant, but Rakoff had determined the SEC had to file a separate lawsuit (see “Judge Rejects New SEC Claims against BofA”).

In his opinion, Rakoff stated the bank had failed to adequately disclose the scope of Merrill’s losses and its authorization that Merrill could pay the billions of dollars in bonuses prior to a shareholder vote on the merger. “Despite the bank’s somewhat coy refusal to concede the materiality of these nondisclosures, it seems obvious that a prudent bank shareholder, if informed of the aforementioned facts, would have thought twice about approving the merger or might have sought its renegotiation,” he said.

However, he did begrudgingly approve the settlement. “In short, the proposed settlement, while considerably improved over the vacuous proposal made last August in connection with the Undisclosed Bonuses case, is far from ideal… While better than nothing, this is half-baked justice at best” Rakoff said.

In September, Rakoff had rejected a proposed $33 million settlement between the SEC and BofA over bonuses paid by Merrill Lynch, (see “It’s a No-Go for BofA Settlement with SEC“)

The settlement approval requires both sides to meet changes agreed upon today by February 25.

Rakoff’s decision can be found here.