Judge: BoA SEC Deal Violates "Most Elementary Notions Of Justice And Morality"
Judge Jed Rakoff, our favorite crusading curmudgeon of the court, is at it again. And once again, he's turned his ire to the backroom deal that Bank of America tried to cut with the Securities and Exchange Commission to settle a complaint about outsize bonuses paid at Merrill Lynch before BofA took it over last year. The $33 million settlement, Rakoff wrote in his decision, "does not comport with the most elementary notions of justice and morality."
Rakoff — who had earlier warned that he wouldn't let the proposed settlement go through — had plenty of choice words for both BofA and the SEC. The deal would have forced shareholders to foot the bill to settle a case involving $3.6 billion in bonuses awarded to top Merrill brass at the same time that the company was crying poverty and begging for a savior.
The judge said the settlement plan:
... suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.
Of course, this isn't Rakoff's first run-in with Bank of America over the Merrill bonuses. Just last month, scolded BofA lawyers who tried to cast bonuses averaging about $91,000 per employee as chump change. "I'm glad you think that $91,000 is not a lot of money," the judge said. "I wish the average American was making $91,000."
We can only hope that after Rakoff is done taking care of all of Wall Street's excesses, he goes into broadcasting. TV and radio might be filled with angry old men, but we can't imagine any of them using Oscar Wilde to slam the SEC, as Rakoff did today, when he compared the agency to a cynic who "knows the price of everything and the value of nothing."
Judge Rejects Settlement Over Merrill Bonuses [NYT]
Previously: Judge Attacks Merrill Pre-Merger Bonuses
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Comments:
I would love to see what would happen if BoA shareholders decided they've had enough and dumped their stock.
Well, I am not sure sure about the "I wish everyone in america made $91,000" because if they did, basic economics would show that everything would then be 4x as expensive as it is now (assuming the average income is $22,000.
It's nice to see that there are some truly independent minds sitting on the bench. A breath of fresh air, and far more important than the circus sideshow litmus tests that social conservatives rail over.
@MostlyHarmless: Damn gubmint, these execs are obviously up in the ranks because they know what they're doing. It's not like they've been engaging in behavior that steered the economy into the shitter. If the damn gubmint minded it's own business, the execs would bring about a veritable economic paradise.
Obama should put this guy in charge of the SEC asap.
He's completely right - $33 million dollars to be paid out of profits that hurt share holds while bank executives not only collected those fat bonuses, but then are sheltered from their criminal activities.
I want to see someone go to jail for this - let Wall Street see that there could be some consequences to their illegal actions.
@Shoelace: Already did my friend. Already did.
I got rid of BofA stock about 2 years ago when they finally threw the last straw and broke my camel's back. I absolutely hate BofA and will tell anyone within earshot to stay away from them.
I've kept at least a dozen people from doing business with them so far, and I'm sure that number will keep rising.
@MostlyHarmless: I especially loved this part...
And all this is done at the expense, not only of the shareholders, but also of the truth
oh and this...
"knows the price of everything and the value of nothing."
but the second one mostly because, clearly, his parents were awesome.
This is a fantastic decision but it could cause some nasty side-effects.
Yes, $33 million would hurt the shareholders, but so would protracted litigation with the SEC. There could be an argument that having this done and over with will allow the company to move on and share prices would increase more quickly as a result.
Also, Merrill Lynch was represented by Shearman & Sterling in the merger. The decision implies that they could be accused of wrongdoing, which would bring them in as a party. A finding of misconduct against S&S, a firm that made almost a billion dollars last year alone, would be devastating. As such, they would fight vigorously.
So, what the judge views as a simple trial could get even more complicated if you have attorneys fighting former clients -- and both fighting the SEC at the same time.
Could this force a higher settlement to avoid a trial, sure. But, what would be high enough to satisfy the judge, who has already indicated that any settlement paid out of company assets will be rejected?
I think it's time for Consumerist to issue trading cards, with the Rakoff card being the most coveted.
@gothamguy: Letting this slide would also encourage more of similar behavior.
So yes, a protracted litigation might hurt the shareholders this time but if they are allowed to get out of jail free, they will continue doing things that hurt the shareholders.
No doubt Rakoff has stock in Bank of America's competition.
Totally agree with you - one of the problems with the country today is that people give up the fight because it's cheaper to settle than to have justice done.
If I'm a banker, and I can get millions in bonus money illegally and the only penalty is my company pays a minor fine, then I'll keep doing it.
Like Enron, an example needs to be set if we ever want to see integrity back in the system.
[taps the Raging Rakoff card]
Ohs noes! All your Magics are belong to me now!
[urinates at opponent in the face - one of the Raging Rakoff's powers]
@Nogard13: The problem is, institutional buyers only see the dividends and share price. Unless they are a moral investor it doesn't enter the equation.
Hello, Moe's Tavern.
Hi, could I please speak to a Mr. Rakoff? Judge J. Rackoff?
J. Rackoff! Somebody check the mens room for a J. Rackoff!
To those who say "Will this hurt the shareholders?"
I say "If it does, good."
It does kind of suck that more or less innocent people get caught in the line of fire, but those who are smart will learn that investing in companies engaged in illegal, fraudulent or otherwise shady activities has risks. People will therefore, I hope, wise up and invest in those companies less.
The problem in this theory arises when the government steps in and saves the companies that failed because of this...but that's a hurdle we'll deal with when we come to it.
This Monday has been a Banner Day! First we have a girl with a modest debt that got her BoA card shanked to the upper limit of credit rates, she goes ape nutz and YT's a rant, then becomes a folk heroine. BoA has nothing to say in this matter.
Next we have His Honor Mr. Rackoff playing pinch hitter for the people and lowers the boom on this chicken s**t settlement (pardon my french, but it's fitting in this case). BoA wants to fight it.
Fine, now they'll have to deal with the Ney York Attorney General that is lining up to waylay the bank with some Major League charges that promise to either topple the monstrosity or at least give them something to be Very Nervous about.
Oh yes, the siege of BoA is just beginning.
@Shadowman615: "Why, when I find out who you are, I'm going to shove a sausage down your throat and stick starving dogs in your butt!"
ARF! ^.^
@gothamguy:
See, there is the problem -- raising share prices should not be the goal of public policy and the legal process in this case. Justice requires looking more closely at the facts and circumstances.
I appreciate the judge calling a spade a spade, although I know he has the power to make the spade act rightly too-FOLLOW THROUGH!
@MostlyHarmless: I agree as well. To simply say "well taking a corporation to court may hurt them."...sorry, sometimes they need to be hurt. And we need some big reform on wallstreet.
Could the SEC just decide that this is too much of a pain to pursue and drop it completely? I assume it's within their power to do so.
The merits of this aside, while I understand it, I have a lingering problem with a judge stopping a settlement between 2 willing parties. The SEC didn't have to bring suit to begin with, and now they have decided that it's appropriate to settle the case. I'm bothered by the fact the judge is intervening and saying "Nope, you have to continue to prosecute." Settlement should be at the prosecution's discretion.
@Princess Leela: Perhaps his comment was deep irony? I can't think of another reason that someone would post it.
@Saboth:
I don't disagree and I like what the judge did. I am simply pointing out that if his concern was for the shareholders, he might not have done them as big a favor as he thought (they are paying for the litigation as well).
Yes, there is a public policy component to this because the SEC is the party bringing suit (which the judge referenced), but he seemed to base his opinion partly on the harm to the shareholders who would be footing the bill for the settlement. He may have just cost them more money.
@Sheogorath: Wait a minute! Shareholders typically do not know about the dirty tricks that a company is up to. While I worked for DHell and was a DHell shareholder, I had no idea what they were up to vis a vis the SEC. I'm sure that the vast majority of individual shareholders didn't either. y'know people's 401(k) accounts typically contain large amounts of stock, spread across several different companies. The folks that have the 401(k) accounts are, for the most part, just average people, not corporate goons. To put the blame on shareholders by and large is both callous and inaccurate.
@gothamguy: I really get tired of the "hurting the shareholders" angle. Truth is, owning stock in any company is a calculated risk, and "company execs break the law, forcing a massive fine that affects profitability" is a risk factor, like it or not.
I'm sorry if this means people get hurt, but those are people who should have known the risks.
Since $91,000 is "chump change", can BoA change the overdraft policy to only charge me if my bank account goes at least $91,001 in the hole?
Any current shareholder of BoA has ZERO excuse to not understand the legal liability/exposures this corporation has. None.
I bought some at a low, and got rid of it a few weeks ago. Made a very nice percentage. Why did I take this risk? I counted on the "too big to fail (or in this case, attack)" and the fact that the big boys were going to buy the financials. Fools are born every day. The ones who continued to hold BoA deserve to pay.
But why wish that he would go into TV and radio?
He should stay on the bench where he can really make a difference, and not just become another cable blowhard.
@Vicky:
I understand and accept the judicial precedent behind it, and I the reasons for the oversight. That said, I'm still uncomfortable with judges interrupting settlements.
@Sheogorath: Wow! You are so smart! Maybe we should all read the memo that these corporations send out to their shareholders entitled: "Illegal things we are doing right now, but don't tell anybody."
You are a genius! Pure genius! Would you, the great oracle of shady companies, tell me all of the companies in America that are doing illegal things? Please!!!
@jdmba: That's the thing, if everyone in this country made $91,000 it would be under the classification of chump change. However, since not everyone in American makes 91k a year 91k is therefore alot of money.
@rekoil: Yeah, if you didn't want to lose your money because the bozo's at the helm plowed us into an iceberg and sent it to Davey Jones' locker, just put all your money in CD's, in $100,000 increments at different banks. That's the safest way to do it.
They are "moral" investors, acting, as is their legal and moral obligation, to work for the people who have entrusted their money to them.
I think a lot of folks here don't understand that the (supposedly) harmed party in this WAS the BoA shareholders.
Um, I hate to break this to you, but the shareholders are the ones on whose behalf the SEC is suing in the first place...
There's almost no conceivable way this isn't going up to the Second Circuit before it's finished.
That said, I'm really surprised that the SEC is willing to settle so cheaply in light of their reputation after the Madoff mess. Where's Stanley Sporkin now that we need him?
@Nogard13: Good for you! If more people took a stand with their wallets this crap would have to decrease, if not stop.
He should change his name to Judge Dredd Rakoff.
This old dude rocks.
@Trojan69: Actually I suppose (eventually) that they'll take it from retail customers and merrill customers...ie me.
@H3ion: If you "SETTLE" a case with the opposing party that means you can't appeal it to a higher court...there would be nothing to appeal!
Very appropriate tag indeed.
Cue in folks who think that execs can do whatever the hell that want and that no one should question them.