SEC should get tougher with BofA

August 11, 2009

In the Bank of America Merrill Lynch bonus imbroglio, the SEC has proposed a settlement in which, once again, the defendants neither admit nor deny wrongdoing.

Once again, the corporation would pick up the fine while responsible individuals escape uninjured. And once again, the public would be left wondering what actually happened. This isn’t justice, nor will it deter fraud.

These were the frustrations expressed by Judge Jed Rakoff in court yesterday. He refused to approve the settlement because he wants to know the truth: Who was responsible for misleading shareholders, and how did they settle on a fine of $33 million?

He told both sides to return to court with more details in two weeks. For the public’s sake, it’s a good thing he did.

In this case, it isn’t just shareholder’s money at stake. It’s taxpayers’. Our bail-out cash saved the bank, and we deserve to know what went on.

What the judge can accomplish isn’t clear. But the simple exercise of forcing the SEC to provide more details of its case would be very valuable.

The SEC’s eagerness to settle without naming names is particularly frustrating. It insists Bank of America, not executives, misled shareholders about Merrill bonuses by deliberately omitting relevant documents from its public filings.

But corporations don’t mislead, people do. And if shareholders were injured, why are they the ones paying the $33 million fine?

“It’s very easy to plea-bargain with shareholders’ money,” says Columbia law professor John Coffee. It’s a shame when the SEC allows them to.

A big problem is that the SEC needs to rethink its definition of success. A drive-by settlement that collects a token payment for fraudulent behavior which the other side neither admits nor denies accomplishes nothing.

Except, perhaps, leaving Bank of America CEO Ken Lewis and colleagues off the hook. They’d obviously prefer the matter went away, not least because more disclosure will provide fodder for private lawyers targeting their bank.

But as Georgetown law professor Donald Langevoort put it to me: “If people remain wealthy after they have engineered a fraud because of the way a settlement is structured, then neither justice nor deterrence is accomplished.”

To be fair, the SEC needs a much bigger litigation budget to go after the likes of Bank of America. But even so it has to be more willing to go to the mat in important cases like this, where it isn’t just shareholders’ money at stake. It’s ours.

14 comments

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Isn’t the real story here not the details of the deal, as distasteful as they may have been, but the shotgun wedding of these two firms wherein Ben Bernanke played the Justice of the Peace and Hank Paulson’s the brides gun wielding father?

Unless this Judge Rakoff is willing to reprise the role of Judge Sirica, of Watergate fame, and use stiff prison terms against small fry to get to the ultimate abuse of power here then I don’t expect much.

To be fair, I doubt Sirica would have been too motivated to take on the Nixon White House if he did not have the Congressional Democrat majority on his side. He might have gotten ‘spitzered’!

Posted by sangellone | Report as abusive

The fact is it is impossible to prosecute malfeasance conducted within major investment banks because the prosecution of the crimes posses a systemic risk.

I don’t understand fining the Company (which is it’s shareholders), in order to help the shareholders.

Posted by Jeremy | Report as abusive

I do not know all the details, but the taxpayers deserve an accounting of funds. If shareholders and taxpayers money was wasted then the guilty parties must be held accountable. Not much to argue about here. What we need is for our representatives to get off the gravy train and to demand accountability. If the SEC cannot regulate accountability then the agency must be replaced.

Posted by f belz | Report as abusive

The SEC vs BOA is like me plea bargaining with my brother while my sister defends. BOA and SEC have the same interest in non disclosure. SHAME on every american for allowing the dregs of our society to wield so much power. There is no hope for us.

Posted by Ryan | Report as abusive

Rolfe,

thanks for writing about this whole SEC sends a fine to a firm and the firm admits no wrong doing. That bullshit has been going on for far too long.

You are doing what a good journalist should and performing a valuable service for society.

I hope closed door regulation starts changing., for too long we have had centralization of power at the federal level which then uses that concentration of power to haggle in “smoke filled” back room style with those it is supposed to regulate.

congrats on your rising media star.

Thanks.

Nick Gogerty

the most funny thing is that the “provision” for SEC was already included in the bonus bill, for just in case.

Posted by Al | Report as abusive

Thanks Rolfe for bringing attention to this subject.
I believe Both Bernanke, Paulson and Lewis are guilty of misconduct, they will agree so that nobody can learn the facts , how Fed was wrong …
Great work

Thanks

John Sipahi

Posted by JohnS | Report as abusive

Umm, why isn’t someone investigating the SEC? It “appears” to me that maybe they (SEC) are in colusion with big business. Aren’t they (SEC) suppose to be looking out for our (the taxpaying citizens) best interests? What’s the point of having an SEC if they don’t do their jobs effectively? Oh, I know, let’s give them a bonus too so they can retain talented people. If you put a psychopathic child molester in “time out” hopeing he will change his behavior he will molest again. This is not brain surgery people it’s simple accountablility for your actions. They (SEC) have been bought.

The subtitle “option Armageddon” is getting closer and closer to being the thought of the day for some of us.

I’ve said this before and I’ll repeat for the record,

“THE CURRENT BANKING SYSTEM WILL DISALLOW YOUR AVAILABLE CREDIT TO STOP YOU FROM BUYING THINGS, WHILE THEIR CREDIT RATINGS SOAR. AND, YOU WILL ULTIMATELY BE TOLD TO TAKE AN ID MARK, WHICH MOST PEOPLE WILL DETEST THE THOUGHT OF, TO KEEP US FROM USING THE MOST INCREDIBLE SYSTEM THAT THE FREE WORLD COULD MUSTER. IT IS SIMPLY STOLEN GOODS AND IT’S GONE! okay?

I would apologize, but I didn’t do anything wrong.

John Holeman

Hi Rolfe, excellent article.

Didn’t the SEC “let” Bernie Madoff slip through the cracks for years and now they’re supposed to actually regulate Wall Street, like they were designed to do in the first place? Hardy har har. What I don’t understand is why there isn’t criminal prosecution of those participating in these frauds against taxpayers and shareholders.

Posted by Nancy Austen | Report as abusive

Doesn’t anyone get it. The government and banks are in this together and the hell with the people. My dealings with the banks in modifications for distressed homeowners are a joke. Banks LIE LIE LIE. There is no such thing as a loan modification. All Bullshit. Obama stop playing and do your job. Ha Ha Ha!!!!

Posted by Michael | Report as abusive

Yay, Rolfe – in the spirit of Show Me The Money, you already had me at “The SEC should get tougher…”

Should it however turn out that the SEC lacks the cojones, willpower and integrity to do its job properly as is apparent, the freedom-loving People of the United States may yet join forces with honest bankers (wherever they may be) to launch injunction and suit for massive damages against BofA for having besmirched the formerly good name of the nation, and of banking, for decades.

Until then, BofA commits institutional flag-burning daily while the SEC fiddles and plays dumb. How’s that for history repeating itself?

Posted by The Bell | Report as abusive

The perpetrators should be held personally responsible for their misconduct. They have demonstrated that their word is worthless. BAC shareholders were induced by their fraudulent misrepresentation to vote for the merger. I want my vote back!
These self-interested people should be barred from serving in public companies because they are unethical. They ostensibly read then signed the documents. They remained silent and failed to correct the error to our detriment. It is their job to look out for our interests. For that they are well-paid.
Let them be accountable. The current settlement offer penaliizes the shareholders (decreased dividend) and customers (increased fees and interest). This is unacceptable because we did nothing wrong.
Thank you.

Posted by Pat Fox | Report as abusive