A federal judge has delayed a decision to approve Bank of America’s $33 million settlement with the SEC over its failure to disclose to shareholders that it authorized a 2008 bonus payout of up to $5.8 billion for Merrill Lynch executives, according to news reports in August.
The Securities and Exchange Commission sued Bank of America on Aug. 3 for not having informed investors about bonuses the government said the nation’s largest bank agreed to pay to Merrill Lynch executives as part of the bank’s $50 billion acquisition of Merrill last January. In settling the case, Bank of America neither admitted nor denied the SEC charges.
On August 26, Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York suggested that lawyers involved in the merger might “be held legally responsible” for the late 2008 proxy statement from BofA that “incorrectly informed shareholders the bank wouldn’t let its new acquisition, Merrill Lynch, pay out $5.8 billion in discretionary year-end bonuses,” according to Bloomberg.
Judge Rakoff told the SEC and Bank of America to submit more briefs on the attorney-client privilege issue by Sept. 9. BofA won’t be able to settle its SEC case until the judge approves the terms. Rakoff also is reported to have asked the SEC to explain why it didn’t investigate whether BofA executives had misled shareholders about bonuses paid by Merrill Lynch.
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Separately, BofA announced a series of management changes, which include the hiring of former Citigroup Smith Barney executive Sallie Krawcheck and the departure of consumer banking head Liam McGee. Krawcheck will also be a member of the bank’s executive management team.
“Considering these challenges and working closely with our board, I reviewed the management team and have decided to make some changes, bringing new talent into the team and adding new perspectives. These changes also position a number of senior executives to compete to succeed me at the appropriate time,” says BofA CEO and President Ken Lewis.
On Aug. 3, Bank of America announced that Krawcheck, a veteran of both Sanford Bernstein and Citigroup, will join as head of BofA’s global wealth and investment management group. Krawcheck replaced Brian Moynihan, who will now lead consumer banking for BofA.
“I am excited that Sallie Krawcheck has agreed to join our company,” Lewis explains. “She is acknowledged to be one of the premier executives in the wealth management industry. Her experience and perspective will lead that business to the next level.”
Krawcheck, 44, was previously CEO of global wealth management at Citigroup, which included Smith Barney, the Citi Private Bank and also the Citi equity research division. She has also served as chief financial officer of Citigroup. Earlier, she was chairman and chief executive officer of Sanford C. Bernstein & Co., and an executive vice president of Bernstein’s parent company, Alliance Capital Management, responsible for managing research, brokerage, and trading operations, as well as its business development and planning.
“I am delighted to join Bank of America. The combination of the Merrill Lynch, U.S. Trust and Bank of America wealth management franchises is a powerhouse, and I look forward to working with all of the talented people there to reach the businesses’ true potential,” Krawcheck says.
Shortly after BofA’s decision to bring Krawcheck on board, the head of Merrill’s operations — Dan Sontag, 53 — announced plans to retire after some 30 years with the firm. “It seems he left after being passed over in the leadership structure,” says Chip Roame, head of Tiburon Strategic Advisors in northern California.