Time for BofA to come clean

August 6, 2009

It may be outrage fatigue, but it is surprising that there has not been more of a public outcry over whether Bank of America misled investors about its acquisition of Merrill Lynch.

Yes, there were three House committee hearings about the deal, but the focus of those was on whether the Treasury and Federal Reserve bullied Ken Lewis, the Bank of America, into closing the deal for the good of the financial system.

But how much did Bank of America know about the scale and direction of the selling losses at Merrill Lynch before shareholders voted on the acquisition on Dec. 5? Why didn’t the bank speak out about the agreement with Merrill on bonuses?

Now a federal judge wants to get some answers. Judge Jed Rakoff of the federal district court in Manhtattan has held up the settlement reached this week between Bank of America and the Securities and Exchange Commission over the bank’s disclosure on the Merrill bonuses, Reuters reports. The judge has ordered a hearing for Monday afternoon.

“Despite the public importance of this case, the proposed Consent Judgment would leave uncertain the truth of the very serious allegations made in the complaint.” The hearing has been set for Monday afternoon.

The judge also seemed to suggest that the proposed, paltry $33 million penalty in the settlement may be something of a wash trade for taxpayers: “The proposed Consent Judgment in no way specifies the basis for the $33 million figure or whether any of this money is derived directly or indirectly from the $20 billion in public funds previously advanced to Bank of America as part of its ‘bail out.’ ”

The judge’s refusal to rubber stamp the S.E.C. settlement is admirable. The failure to disclose the agreement on bonuses was not simply an oversight or unintended misdirection. The bank, according to the S.E.C. complaint, made statements that were “materially false and misleading.”

Yet the only one at Bank of America who appears to have lost his job as a result of the bonuses was John Thain, who took the fall and was unfairly made to appear as if he was responsible for the bank’s lack of candor.

Bank of America needs to come clean about the Merrill acquisition. Monday’s hearing would be a good place to start.

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