Rakoff throws down the gauntlet

September 14, 2009

Judge Rakoff has rejected the settlement deal between the SEC and Bank of America. He clearly wasn’t happy with it to begin with, and subsequent briefs from the two parties did nothing to allay his concerns. At the end of the day, he hated the idea that B of A shareholders, on whose behalf the SEC actually brought the case, would end up paying the fine for executives’ wrongdoing.

So what’s the next step? According to the Reuters story, “Rakoff directed the parties to prepare for a possible trial that would begin no later than February 1, 2010.”

That doesn’t mean there will be a trial. The parties could come back with a settlement more to Rakoff’s liking.

But presumably that would have to involve naming names. Who were the executives responsible for misleading shareholders? B of A has refused to answer that question and the SEC seems to think it doesn’t have the leverage to force it out of them.

I’m happy to see this development. I’m on-record saying the SEC should pick more fights. The truth of the matter is that we need more accountability at the top. The point behind Sarbanes-Oxley, for instance, was that executives would take more responsibility for their misdeeds, in this case Ken Lewis and John Thain.

Too often, “The Corporation” gets the blame and pays the fine. But that isn’t justice, nor does it deter bad behavior.

(Here’s the PDF of Rakoff’s full order)

Comments

Rakoff’s about to get Spitzered.

 

The revolving door is, I believe, the most important factor in the inability of our regulatory agencies to do their job.

How can we get those who have a thorough knowledge of the area they must regulate without tapping that area for talent? Anyone thus selected brings along the network of contacts that will assure the person’s continued financial success once they have left office – but ONLY if they tread carefully while in office.

The demand for knowledge of industry intricacies is forever growing. If an incompetent and/or ignorant person is put in place then the results are as bad or worse than when an industry puppet sits there – the “Brownie” example springs to mind.

Those who wrote the Constitution didn’t have to face this issue, except for “a well-regulated militia” perhaps. So, seriously, what are we to do?

The capcha for this posting is ominous – “toast”

Posted by CB | Report as abusive
 

That could be an interesting dynamic…

: Ok… trial in 3… 2… GO!

: Um… I don’t really want to…

: Shut your mouth! Now prosecute!

: Well, BAC, they’re mean.

: Nuh uh.

: Hmm. I don’t think I can’t beat that your Honor. Can’t I just turn them over my knee and paddle them?

: …

In a different excercise of the imagination, can you imagine the public uproar over the pandering to big money due to this farce of a prosecution if a republican were still president.

Posted by Andrew | Report as abusive
 

lesson: don’t put names in brackets cause they get cut off

Judge: Ok… trial in 3… 2… GO!

SEC: Um… I don’t really want to…

Judge: Shut your mouth! Now prosecute!

SEC: Well, BAC, they’re mean.

BAC: Nuh uh.

SEC: Hmm. I don’t think I can’t beat that your Honor. Can’t I just turn them over my knee and paddle them?

Judge: …

Posted by Andrew | Report as abusive
 

Nicely done, Rakoff. Any hope of clawing back those bonuses?

Posted by Anna | Report as abusive
 

I’m kinda shocked. There’s actually someone working for the government that hasn’t been bought off yet?

Posted by Mikey | Report as abusive
 

Phew, and there I was beginning to believe all the tax-payer funded establishments had sold out to the mega-rich. Let’s hope it’s not a charade.

Posted by Peter H | Report as abusive
 

Am I missing something? I’ve wondered from the start of this financial collapse, who & where are the Board of Directors? Are they not questionable or even liable in any of this?

Posted by Billy | Report as abusive
 

I am informed by Roman-Dutch and British Law: the shareholders, o.b.o. the legal entity and i.t.o. their own interests, should summons the Board, particularly the Chief Executive, who has been mandated to run the entity according to its memorandum and articles of association ? Quite right, the entity should pay the fine which will then reduce free cash flows and whatever goes with that. What about criminal prosecution ? I have studied SOX, and find it even more lightweight than the vessel into which Santa sticks our goodies.

Posted by Casper Lab | Report as abusive
 

Executives will never be financially liable… might get a fraud charge that will mean a few months in Club Fed but will never pay out of pocket. These corps are too big and all executives have a ‘plausible deniability’, though the use of that kind of defence implicity states negligence and therefore liability. But I don’t think shareholders should be spared… they voted these men in and the books are open to them. Due diligence means something and no one really does it anymore. Laziness and greed shouldn’t be forgiven, be it a greedy executive or a greedy investor. Just because there are more investors than executive one can’t say one is any worse than the others. Can’t one argue it’s the shareholders lust for profits and therefore higher dividend, higher share prices that led executives to reach or be purged? Seems reasonable to me, but for now it’s all executive avarice and malicious greed exclusively.

OK, I’ve rambled, but while these top guys deserve punishment I would honestly say they were only chasing the profits their shareholders demanded and rather than saying ‘we’ve gone as far as we can go’, they decided to keep going and give themselves a parachute for the inevitable fall. Just an opinion, I could be totally off-base.

Posted by the Shah | Report as abusive
 

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