President Obama gave a speech marking the one-year anniversary of the Lehman Bros. collapse in Lower Manhattan today and expressed his desire for stricter regulation of the financial industry.
Just up Broadway Ave., at the District Court for the Southern District of New York, however, Judge Jed Rakoff rejected a proposed settlement agreement between the Securities and Exchange Commission and Bank of America, and upbraided the SEC for its "cynical" handling of the case. The SEC brought suit against BoA last year, alleging that the bank lied
to its shareholders on a proxy statement regarding BoA's merger with
Merrill Lynch. The complaint accused BoA of telling shareholders that
Merrill would not give its executives bonuses, when in fact BoA had
agreed to allow Merrill to pay its executives up to $5.8 billion in
On the same day that the complaint was filed, the
parties proposed a settlement to the court whereby the court would
enjoin BoA from making any further false statements and BoA would pay a
$33 million fine to the SEC.
But Judge Rakoff felt that the
proposal was "neither fair, nor reasonable, nor adequate." Rakoff
focused in particular on the fact that the victims of BoA's
misbehavior, the shareholders, would end up paying the fine after they
had already been tricked into a $5.8 billion merger.
Rakoff suggested, the SEC should go after the lawyers who approved the
proxy language, and pointed out that the SEC's failure to do so
violated the agency's own stated policies.
In the final analysis, Judge Rakoff wrote:
The proposed Consent Judgment in this case 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.
you have President Obama on Wall Street beating the drum for aggressive
financial oversight while a federal judge in the Civic Center
simultaneously chides a federal agency for not following its own
policies regarding enforcement.
And they wonder why some people question the government's competency.
See Also: Judge Rejects SEC Deal with Bank of America, Asks Why Lawyers Weren't Charged (ABA Journal) Let's Go to Trial: Rakoff Slams BofA, SEC, Rejects Pact (WSJ Law Blog)