BofA pushes SEC settlement, rejects Cuomo charges
Bank of America Corp and the U.S. Securities and Exchange Commission on Wednesday made a third attempt to persuade a skeptical judge to approve their settlement over Merrill Lynch & Co bonuses. But experts said they may not have done enough.
The largest U.S. bank separately rejected allegations brought Tuesday by New York Attorney General Andrew Cuomo that it is hiding behind attorney-client privilege as a defense for its decisions over Merrill. Cuomo has threatened to sue top executives if the bank by September 14 is not more forthcoming.
Bank of America agreed last month to pay $33 million to settle SEC charges it misled investors about $3.6 billion of bonuses paid to Merrill employees, which lost $27.6 billion last year.
Yet U.S. District Judge Jed Rakoff in Manhattan has twice refused to sign off on the settlement, demanding more details about who knew what about the bonuses.
He has expressed incredulity at the SEC’s allowing the bank to avoid disclosures by asserting that top officials relied on lawyers to make decisions about the disclosures. The bank did not admit wrongdoing in agreeing to settle.
Wednesday’s filings, which do not assign responsibility to individual executives, may not change the judge’s mind.
“We’re getting from the SEC a bureaucratic stonewall, and from the bank an opaque silence about what went on,” said John Coffee, a Columbia University law professor who reviewed the briefs. “The SEC hopes the court will rubber-stamp the settlement, but it has to face that all events are tipping in the direction that no one other the SEC and the bank want this settlement to go forward. The public wants more disclosure free credit score online.”
Coffee teaches a class at Columbia with Judge Rakoff.
The judge could hold a hearing on the matter, the bank and the SEC could try to renegotiate the settlement, or more litigation could ensue. Indeed, Bank of America said it “stands ready to litigate” if the settlement is turned down.
“I hope the judge rejects the settlement,” said Charles Murdock, a law professor at Loyola University of Chicago. “There was a failure to adequately disclose terms of the transaction and Merrill’s financial situation.”
CUOMO THREATENS LAWSUIT
Bank of America has faced months of anger by shareholders and in Congress over the shotgun Merrill merger, which resulted in a federal bailout and restrictions on executive pay.
The merger has also called into question the leadership of Chief Executive Kenneth Lewis, who this year ceded his role as chairman and lost half of his supportive board of directors.
In threatening to sue individual executives, Cuomo accused them of failing to reveal material information about the Merrill merger. This includes the bonuses, Merrill’s $15.8 billion fourth-quarter loss and the bank’s efforts to back out of the transaction before it closed on January 1.
He said the bank’s former general counsel Timothy Mayopoulos testified to having advised executives four days before a shareholder vote as to whether the bank could invoke a “material adverse change” clause to cancel the merger — but was not allowed by the bank to say what he advised.