US judge tells BofA, SEC to reveal more on bonuses

August 25, 2009

NEW YORK, Aug 25 (Reuters) – A federal judge asked Bank of America on Tuesday why it agreed to pay the U.S. Securities and Exchange Commission $33 million if it believed it had properly disclosed 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.

Bank of America had told Rakoff on Monday that it did not mislead shareholders about its approval of up to $5.8 billion of bonuses for 2008, saying it was “widely understood” from Merrill’s filings and press reports that Merrill would pay out billions of dollars, despite a full-year $27.6 billion net loss.

Rakoff said it was “puzzling” that the regulator accepted statements by bank executives that they relied on their lawyers as to what disclosures were made in the proxy statement given to shareholders who voted on the merger.

The SEC, meanwhile, maintained that while the largest U.S. bank was wrong not to tell shareholders about the payouts, the settlement strikes a fair balance that deters further wrongdoing without punishing shareholders.

Rakoff said it is “at war with common sense” for executives to rely on counsel and then not waive attorney-client privilege, saying “the culpability of both the corporate officer and company counsel will remain beyond scrutiny.”

Rakoff must sign off on the settlement over the bonuses, which ultimately totaled $3.6 billion. He directed both parties to submit new papers by Sept. 9.

Bank of America and the SEC were not immediately available for comment.

Shares of Bank of America closed Tuesday up 40 cents at $17.75 on the New York Stock Exchange.

The case is SEC v. Bank of America Corp, U.S. District Court, Southern District of New York (Manhattan), No. 09-6829.

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