SEC should get tougher with BofA
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.