BofA, SEC, Finger Wachtell, Shearman, Ask Rakoff to Approve Deal

[WSJ_law_blog]

Anyone with serious interest in the situation concerning Manhattan federal judge Jed Rakoff’s failure to approve a settlement between the SEC and Bank of America has got a trove of new information to deal with today.

Let’s try to get you up to speed. Judge Rakoff recently refused to sign off on a $33 million settlement of an SEC civil lawsuit targeting the bank for what it disclosed about the certain executive bonuses before a December shareholder vote. Rakoff, feeling that the sides hadn’t adequately addressed who was responsible for the situation, ordered each side to submit further briefing on the point. Click here, here and here for previous LB coverage.

On Monday, those briefs came in. Perhaps most eye-popping to us: both sides’ pointing fingers at BofA and Merrill’s outside lawyers for detailing the deal. Those lawyers: Wachtell, Lipton, which represented BofA, and Shearman & Sterling, which repped Merrill. Click here for the WSJ story, here for the NYT story, and here for a nice writeup from the AmLaw Litigation Daily.

The SEC said the bank’s decision to mention the bonuses in an attachment to its proxy statement — rather than the proxy statement itself — had been made by the bank’s outside lawyers and at least two lawyers in Bank of America’s legal department.

That said, the bank did not name which of its own executives approved the lawyers’ decisions, a point which could cause Rakoff further consternation.

The SEC said it had asked Kenneth Lewis, the chief of Bank of America, and John Thain, Merrill’s chief executive at the time, and Merrill’s former president, Gregory Fleming, why the bonus information was kept in a separate disclosure. “None of them could provide an answer,” the agency said.

But beyond that, both sides asked Judge Rakoff to look past the issue and approve the deal.
The SEC called the settlement “fair, reasonable, adequate, and squarely” in the public’s interest. The SEC also said the penalty “strikes the right balance” between the agency’s goals of deterring others from committing similar violations and preventing “unnecessary harm to innocent shareholders.”

“Although the extent to which taxpayer money was used indirectly to pay these bonuses plainly is a matter of public importance,” the SEC wrote in its filing “it does not, in and of itself, give rise to a federal securities law violation.”

For its part, Bank of America said there had been no false or misleading information in the proxy it gave shareholders. It said that a November 2008 proxy didn’t contain a “flat prohibition” against Merrill incentive compensation and even stipulated that a “negative covenant” restricting year-end bonuses would be subject to exceptions.

[forum_admin]

A federal judge on Tuesday ordered the U.S. Securities and Exchange Commission to do a better job of explaining why it did not pursue allegations that Bank of America Corp lied in its proxy statement about its approval of bonuses for Merrill Lynch & Co employees.

U.S. District Judge Jed Rakoff said if the bank did so "to curry favor with the SEC or to avoid retaliation by the SEC, the court needs to know the specifics."

By digging into the motivation behind such a settlement, the judge was throwing the spotlight on a practice that often sees regulators reaching financial settlements with companies that don't admit wrongdoing.