Federal Judge Rejects $33 million SEC Settlement with Bank of America over Excessive Bonuses

Bank on August 6, we blogged that the SEC's just-announced deal with BofA to settle claims of concealing unpaid executive bonuses was pretty lame.  We pointed out two glaring problems with the settlement: i.e.,  that the $33 million settlement was "infinitesimal" next to the multi-billion dollar fraud being alleged and that "even more conceptually problematic" this amount was supposed to "be paid by the same shareholders who were the victims of the non-disclosure in the first place."  

Federal District Judge Jed Rakoff is apparently on the same page.  As reported in today's LA Times, he has rejected the proposed settlement on exactly these grounds. 

In his 12-page ruling, Rakoff criticized the $33-million payment, saying that if Bank of America intentionally deceived shareholders, "$33 million is a trivial penalty for a false statement that materially infected a multibillion-dollar merger."

He also questioned why Bank of America shareholders should foot the bill for misdeeds approved by executives. Regulators say shareholders weren't aware of the bonuses before voting to approve the deal to acquire Merrill late last year, according to regulators.

"The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money . . . is absurd," Rakoff wrote.

Perhaps Judge Rakoff is a reader of this blog.  More likely, however, he just had the good common sense to reject a transparently absurd deal whose purpose was to achieve a politically expedient press release rather than any substantive recovery for fraud victims.

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