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Judge Rakoff’s People’s Court

Judge Jed Rakoff’s courtroom at the federal district court in Manhattan will turn into a people’s court of sorts as he looks to get to the bottom of the paltry $33 million Bank of America settlement with the SEC, which was looking into whether the bank misled shareholders about bonuses paid to Merrill Lynch employees.

The settlement amount is peanuts next to the $5.8 billion in authorized Merrill bonuses and the billions the government injected into the bank to keep it afloat.

Reuters reported last week that lawyers expect the judge “to focus on whether the fine is in the public’s interest, particularly given that Bank of America has taken $45 billion of taxpayer funds from the federal Troubled Asset Relief Program.”

As fellow blogger, and also editor for the U.S. commentary service at Reuters, noted last week, the hearing is also an opportunity to answer some of the questions alleged in the complaint.

Time for BofA to come clean

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.

from Rolfe Winkler:

Buffett’s Betrayal

Photo

When I was 14, Warren Buffett wrote me a letter.

It was a response to one I'd sent him, pitching an investment idea.  For a kid interested in learning stocks, Buffett was a great role model.  His investing style -- diligent security analysis, finding competent management, patience -- was immediately appealing.

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company's annual meeting.  I was hooked.  Today, Buffett remains famous for investing The Right Way.  He even has a television cartoon in the works, which will groom the next generation of acolytes.

Come on Massey: man or mouse?

Bank of America’s settlement with the Securities and Exchange Commission sheds some light on the shambolic merger agreement the bank struck with Merrill Lynch last autumn, and how it neglected to inform its own investors of the monster bonuses it then allowed Merrill to carry off.

The word “allowed” is the mot juste here, by the way. The key schedule to the merger agreement (undisclosed by BofA but revealed by the SEC) makes it clear that BofA authorised what was in the end a payola of $3.6 billion in accelerated bonuses to Merrill bankers, 60 per cent of which was paid in cash.

John Thain was right

John Thain has been pilloried for the billions of dollars in bonuses paid to Merrill Lynch employees despite the firm’s $27.6 billion loss for 2008. He has taken the brunt of the criticism because Bank of America has said that the decision to pay $3.6 billion in Merrill bonuses before the end of the year, before the deal closed, was solely Thain’s. The former Merrill CEO has protested, telling the Wall Street Journal in April that “the suggestion Bank of America was not heavily involved in this process, and that I alone made these decisions, is simply not true.”

It turns out that true to his reputation as a straight-arrow Boy Scout, Thain was telling the truth. BofA was not forthcoming on the bonus process, according to the Securities and Exchange Commission, which says that the bank made “false and misleading statements” about bonuses in its joint proxy statement on the deal. The S.E.C.’s complaint, which BofA agreed to settle by paying a $33 million penalty, says:

Apocalypse Then

How bad was the financial crisis in the bleak depths of September?

At today’s House Oversight subcommittee hearing on the Bank of America/Merrill Lynch merger, Representative Paul Kanjorski, the Pennsylvania Democrat, tried to coax Hank Paulson, the former Treasury secretary, to describe the potential doom and gloom policy makers were contemplating as the TARP proposal was being drafted.

Paulson was reluctant to be drawn out on what he and others had feared, but said that “when a financial system breaks down… the number of unemployment we were looking at was much greater than the number we are looking at now.”

Bank of America to accept California IOUs

At least one bank has said it will honor California’s IOUs, which the state’s controller will start sending out today. Bank of America said it will accept the warrants from its customers, at least through July 10.

The press release though doesn’t say whether the bank will charge customers an additional fee for the favor.

The Congressional hearing we need

Once again the folks on Capitol Hill are spending time on a sideshow and ignoring the main event. What I’m talking about is today’s second round of Congressional hearings into the awful merger of Bank of America and Merrill Lynch. 

Today’s featured witness is Gentle Ben Bernanke. Republicans on the House Financial Services Committee are determined to show that Bernanke twisted poor Ken Lewis’ arm, forced him to complete the Merrill acquisition and then covered it up. Meanwhile, Democrats want to prove that the BofA chief executive tried to blackmail the Fed and Treasury into coming up with financial aid to make the deal more palatable.

Caught between bonuses and a government bailout

Paying bonuses to bank executives is going to bring out the populism in everyone, especially when it’s one of the biggest recipients of taxpayer handouts. The New York Post reports that the Bank of America is earmarking big bucks to keep top talent.

Among those who are said to have received payouts are two former Merrill Lynch bankers, Fares Noujaim, who was recently appointed as BofA’s vice chairman of investment banking, and Harry McMahon, a well-connected West Coast-based banker. Both were offered guarantees not to leave the firm.

BofA and the fraudster

Ken Lewis spent much of the day on Capitol Hill getting grilled about Bank of America’s acquisition of Merrill Lynch during the heat of the financial crisis. But Lewis may have bigger things to worry about down the road, as his bank’s past dealings with a hedge fund fraudster just won’t go away.

A federal appeal court, in a little-noticed ruling, reinstated an aiding-and-abetting claim filed against BofA by some former investors of Michael Lauer, who master-minded a billon dollar hedge fund fraud. A federal trial court judge in New York had dimissed the case against Bofa, which was the prime broker for Laurer’s $1 billion Lancer funds. But the appeals court, without determining the merits of the allegations, says the investors should be able to press ahead with their claim against the big bank. 

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