Financial Regulatory Forum

Bank of America, U.S. SEC say execs not liable on Merrill bonuses

By Reuters Staff
September 9, 2009

Bank of America CEO Ken Lewis in this  February 11, 2009 file photo. Bank of America Corp shareholders voted to oust Lewis as chairman of the board on April 29, 2009 after months of mounting criticism of his stewardship of the largest U.S. bank. REUTERS/Larry Downing/Files By Jonathan Stempel
NEW YORK, Sept 9 (Reuters) – Bank of America Corp and the U.S. Securities and Exchange Commission made a third and perhaps final push to convince a federal judge to approve a settlement over the alleged misleading disclosure of Merrill Lynch & Co bonuses, saying executives should not be charged.

U.S. District Judge Jed Rakoff in Manhattan has twice refused to sign off on the $33 million settlement, demanding more details about who knew what about the $3.6 billion of bonuses at the time they were authorized.

The judge has expressed incredulity at the SEC’s allowing the bank to avoid disclosures by asserting that top officials, including Chief Executive Kenneth Lewis, relied on lawyers to make decisions about the disclosures. He has said the settlement might not be “remotely reasonable” if the bank in fact lied about the bonuses.

It remains unclear whether Wednesday’s filings will lead to approval of the settlement. Rakoff could hold a hearing on the matter, the bank and the SEC could try to renegotiate the settlement, or more litigation could ensue.

Complicating the matter are lawsuits that New York Attorney General Andrew Cuomo threatened on Tuesday to bring against bank executives for failing to reveal material information about the merger. These include the bonuses, Merrill’s $15.8 billion fourth-quarter loss and the bank’s efforts to back out of the transaction before it closed on Jan. 1.

Lewis Liman, a partner at Cleary Gottlieb Steen & Hamilton LLP representing the bank, called Cuomo’s premise “simply wrong,” saying the bank has not “offered reliance on legal advice as a justification for its disclosures.”

Cuomo’s office did not immediately return a request for comment.

PLAIN VIOLATIONS, BUT NO EXECUTIVES CHARGED
In its Wednesday court filing, the SEC said that, while the bank “plainly violated” proxy disclosure rules, the proposed settlement is “fair, reasonable, adequate and in the public interest.”

The SEC also said there is not enough evidence for charges against individual executives, some of whom have said they relied on their lawyers as to what to disclose.

Bank of America, for its part, said there is “no evidence that any individual is culpable,” and no basis for showing that anyone at the bank or Merrill sought to lie to shareholders.

The Charlotte, North Carolina-based bank also called “far-fetched” the idea it could have fooled shareholders into believing it would retain key Merrill employees if it did not authorize bonuses that had come to be “traditionally received” on Wall Street.

“If the settlement is not approved, Bank of America stands ready to litigate,” the bank said.

Bank of America shares were up 3 cents at $17.05 in afternoon trading. They traded at $33.74 when the Merrill purchase was announced last Sept. 15, the same morning that Lehman Brothers Holdings IncĀ  went bankrupt.

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