Monday's $150 million settlement between Bank of America and the
Securities & Exchange Commission was "stunning" and will haunt
the bank for years to come, according to one industry analyst.
Monday, Judge Jed S. Rakoff from the U.S. District Court
for the Southern District of New York "reluctantly approved" the
$150 million settlement between the bank and the SEC regarding the
bank's disclosures of financial losses at Merrill Lynch prior to
the acquisition of the brokerage firm. Rakoff did not think the
settlement truly addressed the issues of fairness and public
interest, but he said that both sides had reminded him that the law
specifies that the SEC be given "substantial deference" as a
Under the current agreement, the SEC asked BofA to undertake
reforms pertaining to the bank's disclosure process in addition to
the multi-million penalty, according to the SEC's legal brief filed
earlier this month.
Chip Roame, managing principal of Tiburon Strategic Advisors,
said the settlement essentially concedes that Bank of America [BAC]
had been wrong. The original proposal had called for the bank to
pay $33 million, but that was shot down by Rakoff.
Roame says the new settlement also opens the door wider for New
York Attorney General Andrew Cuomo, who also filed suit against the
bank and former executives. Moreover, this also paves that way for
possible shareholder lawsuits, Roame says. Earlier this month, New
York Attorney General Andrew Cuomo's office also filed charges
against BofA as well as former chief executive Kenneth Lewis and
former chief financial officer Joseph Price for allegedly hiding
losses at Merrill Lynch before its acquisition of the brokerage
According to that lawsuit, Bank of America's management
intentionally failed to disclose massive losses at Merrill before
shareholders approved the acquisition. Moreover, once the deal was
approved, management then allegedly manipulated the federal
government into granting a massive taxpayer bailout, according to
the complaint. Cuomo's suit is still pending.
Bank of America did not respond to any of these latest comments,
but it did say Monday in an email that is was "pleased that the
settlement with the SEC has been approved."
The Attorney General's office did not respond to a phone call
about its suit against BofA, but an article in
The Wall Street Journal
blog said that while the new settlement sends some "mixed
signals" about Cuomo's suit, his office was "quick to declare the
ruling bolstered its case."
Last September, Judge Rakoff had rejected the proposed
settlement of $33 million, partly on the grounds that it was unfair
to BofA's shareholders. This time, according to other press
reports, he demanded that the settlement be adjusted so that funds
would be distributed specifically to the legacy BofA shareholders
harmed by the non-disclosures and not the Merrill Lynch
shareholders. The judge also asked the SEC and the bank to include
a provision, which had already been agreed upon, for the SEC to
have a say in the hiring of an independent auditor to assess
whether the bank's accounting controls and procedures are
The court action stems from BofA's $50 billion acquisition of
Merrill Lynch at the height of the financial crisis in the fall of
2008 and the failure of management to disclose massive losses at
Merrill before shareholders approved the deal. The SEC has
maintained that senior management and in-house counsel "erroneously
concluded that no disclosure was necessary because the projected
quarterly loss was within the range of losses that Merrill had
sustained in the preceding five quarters."
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