Judge Jed S. Rakoff of the United States District Court of the Southern District of New York has thrown out a proposed settlement between the SEC (see SEC Complaint) and Bank of America. At issue is whether or not the bank allegedly hid from shareholders, in the run-up to the purchase of the failing Merrill Lynch, large bonuses that Merrill paid to executives early in 2009 after the failed firm was acquired by the bank.
Demanding that the Securities and Exchange Commission and Bank of America litigate instead of settle, Judge Rakoff said, in a scathing Memorandum Order, filed on Sept. 14, that he would not accept the settlement as proposed.
Instead Rakoff said that the SEC and Bank of America had proposed that the bank’s management, “–having allegedly hidden from the Bank’s shareholders that as much as $5.8 billion of their money would be given as bonuses to the executives of Merrill who had run the company nearly into bankruptcy–would now settle the legal consequences of their lying by paying the S.E.C $33 million more of their shareholders’ money.”
“This proposal to have the victims of the violation pay an additional penalty for their own victimization was enough to give the Court pause,” Rakoff went on. He added later that the Court, even with due “deference,” found the proposed settlement to be “neither fair, nor reasonable, nor adequate.”
That the shareholders who were allegedly victimized should pay yet more, “does not comport with the most elementary notions of justice and morality,” the Judge added.