Judge: BofA’s Merrill stance ‘puzzling’
Wednesday, August 26, 2009, 10:20am EDT | Modified: Wednesday, August 26, 2009, 4:22pm
Charlotte Business Journal - by Adam O'Daniel Staff Writer A federal judge says the details supporting Bank of America Corp.’s settlement with the U.S. Securities and Exchange Commission over the bank’s purchase of Merrill Lynch & Co. are “puzzling” and “at war with common sense.”
U.S. District Judge Jed Rakoff in New York issued an order Tuesday directing BofA and the SEC to submit more information about the $33 million settlement they agreed to earlier this month.
The agreement was designed to resolve SEC allegations that BofA misled its shareholders about bonuses paid to Merrill Lynch employees shortly before BofA acquired the New York brokerage on Jan. 1.
Charlotte-based BofA told shareholders in a proxy that no bonuses would be paid without its approval, when in fact bonuses had already been paid, the SEC alleged. By paying the fine, BofA (NYSE:BAC) would settle the charges without admitting or denying wrongdoing.
But Rakoff refused to rubber-stamp the settlement and asked the bank and the SEC for more details. In court filings, BofA says its management followed the advice of its legal counsel when deciding what to disclose to shareholders about the bonuses. It also says those conversations with attorneys are private because of attorney-client privilege.
The SEC in filings stands by its initial allegations. But it contends it can’t collect enough evidence to bring harsher penalties against BofA or its leadership because of the bank’s right to attorney-client privilege.
The explanations didn’t satisfy Rakoff. In a court document, he says the explanation suggests all a corporate officer needs to do to produce a false proxy statement is offer as a defense that he or she relied on counsel and then not waive the attorney-client privilege so the claims can’t be tested.
“This seems so at war with common sense that the court will need to be shown more,” Rakoff says in his order issued Tuesday.
Rakoff also says if BofA’s attorneys produced a misleading proxy then they should be held legally responsible. And he voiced concern that the penalty for allegedly misleading shareholders would come from the shareholders’ pockets by fining the corporation and not the individuals responsible.
The judge has given BofA and the SEC until Sept. 9 to respond to his concerns. Judge: BofA?s Merrill stance ?puzzling? - Charlotte Business Journal: