Law Firms Put in Unfamiliar Spot

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Wachtell, Shearman Under Scrutiny for Advisory Roles in BofA-Merrill Deal

Two of the nation's most prominent law firms are facing scrutiny after a federal judge tossed a proposed government settlement with Bank of America Corp. over bonuses paid to Merrill Lynch employees after their 2008 merger deal.

The controversy has pushed two firms that advised in the deal -- Wachtell, Lipton, Rosen & Katz, representing Bank of America, and Shearman & Sterling LLP, Merrill's counsel -- out from the traditional role of behind-the-scenes advisers to the limelight of center stage.

The scrutiny comes as U.S. District Judge Jed Rakoff on Monday rejected the Securities and Exchange Commission's proposed $33 million settlement of a suit alleging that Bank of America didn't adequately disclose that it had authorized billions of dollars in year-end bonuses to Merrill executives before the bank acquired Merrill this year.

While the judge's decision leaves Bank of America as a defendant facing a trial, he funneled some of his ire toward the lawyers involved. The SEC stated in court filings that lawyers "made the relevant decisions concerning the disclosure of the bonuses." Judge Rakoff retorted: "If that is the case, why are the penalties not then sought from the lawyers?"

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Law Firms Put in Unfamiliar Spot - WSJ.com



The Wachtell, Lipton office in Midtown Manhattan, above. Martin Lipton, below, in 2006, is a founding partner. (Erica Beckman for The Wall Street Journal)