Financial Regulatory Forum

U.S. companies oppose SEC money fund proposals-WSJ

September 11, 2009

uscoc    Sept 11 (Reuters) – The U.S. Chamber of Commerce and 20 companies have raised objections to the U.S. Securities and Exchange Commission’s proposed limits on the kinds of debt money-market mutual funds can buy, the Wall Street Journal said, citing a chamber letter to the SEC.
   The companies, which include Avon Products Inc <AVP.N> and Walt Disney Co <DIS.N>, believe the proposed limits may hurt their ability to raise money at a time when bank lending is difficult, according to the paper.
   “In many cases, the reduced financing flexibility and increased cost of capital could negatively impact investors in these companies and be directly passed down to consumers in these industries,” the paper quoted the companies as saying in the chamber’s letter to the SEC.
   The SEC’s proposal to prohibit money funds from buying anything but the highest-rated securities is aimed at reducing risk in the $3.8 trillion money-fund industry, according to the paper.
   The U.S. Chamber of Commerce and the SEC could not be immediately reached for comment by Reuters. (Reporting by Ajay Kamalakaran in Bangalore; Editing by David Holmes) ((ajay.kamalakaran@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800 +1 646 897 1898; Reuters Messaging: ajay.kamalakaran.reuters.com@reuters.net)) 
 Keywords: FINANCIAL SEC/
  
Friday, 11 September 2009 07:22:18RTRS [nBNG319062] {C}ENDS

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The SEC’s suit against BofA is the right action against the wrong defendant. There is no question that material information was withheld from BofA’s shareholders in violation of applicable Securities Laws prior to their vote on the Merrill Lynch merger.

However, a suit against the corporation punishes the wronged shareholders — not the real wrongdoers — BofA’s executive management.

If the SEC goal waw to prevent such occurrences in the future (rather than to merely politicially appear to be responding), it would sue BofA’s CEO, CFO, and Board of Directors, rather than the corporation. They were aware of Merrill’s deterioration from the pro forma financials upon which the deal price to Merrill shareholders was based and the fact that the mid-night hour due diligence for the deal failed to properly take into account the huge executive bonus contracts that Merrill was legally required to honor.

Despite this knowledge and what appears to be significant discussions internally at BofA concerning its importance, these executives all failed to comply with applicable securities disclosure laws and to perform their fiduciary obligation to the shareholders, by stickering the prospectus with the bad news about Merrill prior to the shareholder vote.

The government may be reluctant to face the likely defense that will be raised by these individuals –that the government itself was pressuring them to proceed with the Merril transaction by (at least impliedly) threatening to withhold important bail-out support to BofA, if it terminated the transaction.

However, pressure to proceed with the Merrill transaction does not equate to pressure to keep shareholders in the dark. The corporate team could have (and should have) told their shareholders about the deterioration in Merrill’s prospects, the duty to pay of the Merrill bonuses under the applicable merger agreements, and the importance of completely teh the deal to obtaining desperately needed government bail-out money. The shareholders would have then voted on this very difficult and important business question as the law anticipates.

If the shareholder’s had voted to “recut” the deal, the price paid to Merrill shareholders would have more closely reflected the true Merrill value and Merrill managers would have been faced with the difficult fiduciary choice of foregoing at least some of their exorbitant bonuses to keep the deal afloat.

By not exposing this matter to the light of day, BofA’s executive team caused the Merrill shareholders and departing managers to gain at the expense of BofA’s shareholders and at the expense of US taxpayer who had to contribute more to BofA in the wake of the financial crises (which only deepened when the true facts about Merrill came out shortly after the shareholder vote).

By bringing this action against the corporation, rather than its executives,the SEC is compounding this wrong. Any fine against the company will harm the shareholders, not the real wrongdoers, and will shift money that should have gone to pay-off U.S. Taxpayer loans to the SEC (where it will be wasted by the very bureaucrats who aided and abetted the financial collapse).

Posted by Concerned Business Lawyer | Report as abusive
 

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