Will Judge Rakoff call another hearing?

September 9, 2009

The latest briefs are in in the SEC/Bank of America case and it’s more of the same. BofA claims it didn’t mislead investors because they should have known Merrill’s people would be bonused. The SEC says that’s ridiculous, that the disclosure statement laying out the bonuses should have, ya know, been disclosed. The fact that it wasn’t means BofA misled shareholders.

The bottom line is that these filings break no new ground. The reason Judge Rakoff ordered BofA and Merrill to file additional briefs on the 24th and again today was because he was dissatisfied with the settlement to begin with. He wanted names. What’s the point of fining shareholders if they were the ones misled by company executives? Shouldn’t those executives be held responsible?

Since neither side gave Rakoff what he asked for, I imagine he may order them back to court for another hearing.

In the meantime, Andrew Cuomo will pick up the SEC’s fumble and run with it. Yesterday his office wrote a letter to BofA’s lead lawyer Lewis Liman complaining that BofA is obstructing its investigation.

The key dispute has to do with attorney-client privilege, which Cuomo’s office says can’t be used as both “sword and shield.” Since BofA executives are claiming they relied on their lawyers to determine what was published in public filings — it’s the lawyers’ fault if anything was misleading — they can’t simultaneously hide the details of those discussions behind attorney client privilege.

Cuomo is giving them till next Monday to reconsider their strategy, otherwise his office will proceed with “charging decisions.” What that means isn’t clear and today Cuomo’s office declined comment.

In the meantime, we’ll wait for Judge Rakoff to weigh in on the latest filings.

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