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1UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK------------------------------------xSECURITIES AND EXCHANGE COMMISSION, ::Plaintiff, : 09 Civ. 6829 (JSR):- v - :: MEMORANDUM ORDERBANK OF AMERICA CORPORATION, ::Defendant. :------------------------------------xJED S. RAKOFF, U.S.D.J.In the Complaint in this case, filed August 3, 2009, theSecurities and Exchange Commission (“S.E.C.”) alleges, in starkterms, that defendant Bank of America Corporation materially liedto its shareholders in the proxy statement of November 3, 2008that solicited the shareholders’ approval of the $50 billionacquisition of Merrill Lynch & Co. (“Merrill”). The essence ofthe lie, according to the Complaint, was that Bank of America“represented that Merrill had agreed not to pay year-endperformance bonuses or other discretionary incentive compensationto its executives prior to the closing of the merger without Bankof America’s consent [when] [i]n fact, contrary to therepresentation ..., Bank of America had agreed that Merrill couldpay up to $5.8 billion –- nearly 12% of the total considerationto be exchanged in the merger –- in discretionary year-end andother bonuses to Merrill executives for 2008.” Compl. ¶ 2. Along
 
2with the filing of these very serious allegations, however, theparties, on the very same day, jointly sought this Court’sapproval of a proposed final Consent Judgment by which Bank ofAmerica, without admitting or denying the accusations, would beenjoined from making future false statements in proxysolicitations and would pay to the S.E.C. a fine of $33 million.In other words, the parties were proposing that themanagement of Bank of America – having allegedly hidden from theBank’s shareholders that as much as $5.8 billion of their moneywould be given as bonuses to the executives of Merrill who hadrun that company nearly into bankruptcy – would now settle thelegal consequences of their lying by paying the S.E.C. $33million more of their shareholders’ money.This proposal to have the victims of the violation pay anadditional penalty for their own victimization was enough to givethe Court pause. The Court therefore heard oral argument onAugust 10, 2009 and received extensive written submissions onAugust 24, 2009 and September 9, 2009. Having now carefullyreviewed all these materials, the Court concludes that theproposed Consent Judgment must be denied.In reaching this conclusion, the Court is very mindful ofthe considerable deference it must accord the parties’ proposal,since it would seemingly result in the consensual resolution of
 
3the case. Society greatly benefits when lawsuits are amicablyresolved, and, for that reason, an ordinary civil settlement thatincludes dismissal of the underlying action is close tounreviewable. See Hester Industries, Inc. v. Tyson Foods, Inc.,160 F.3d 911, 916 (2d Cir. 1998)(citing cases). When, however,as in the case of a typical consent judgment, a federal agencysuch as the S.E.C. seeks to prospectively invoke the Court’s owncontempt power by having the Court impose injunctive prohibitionsagainst the defendant, the resolution has aspects of a judicialdecree and the Court is therefore obliged to review the proposala little more closely, to ascertain whether it is within thebounds of fairness, reasonableness, and adequacy – and, incertain circumstances, whether it serves the public interest. SeeS.E.C. v. Randolph, 736 F.2d 525, 529 (9th Cir. 1984); see alsoS.E.C. v. Wang, 944 F.2d 80, 85 (2d Cir. 1991). See generally,United States v. ITT Continental Baking Co., 420 U.S. 223 (1975);United States v. North Carolina, 180 F.3d 574 (4 Cir. 1999).
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But even then, the review is highly deferential. S.E.C. v.Worldcom, Inc., 273 F. Supp. 2d 431, 436 (S.D.N.Y. 2003).Here, however, the Court, even upon applying the mostdeferential standard of review for which the parties argue, isforced to conclude that the proposed Consent Judgment is neitherfair, nor reasonable, nor adequate.

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Robin Postellleft a comment

Prose. Beautiful. Thank you. Ethics. Truth.

crtuneleft a comment

This continues our public inspection of the processes and procedures of our foremost regulator in the U.S., The Securities Exchange Commission. Now, I'd like to state that I fully thing the mission of the SEC is essential to our economy, but my concern is that SEC is not doing their job, that they are engaged in a variety of misfeasances or simply not doing what they ought to do. The SEC is not trying to take away the court's "contempt" power, but, is engaging in it's typical move to the "easy way out". My experience with financial regulation, is that speed and not quality is the daily expectation for the regulator's staff. Here, also, I believe I see a reluctance to charge legal professionals at BofA with, what appears, at least, to be culpable behavior. Do we see here similarities to Enron? Professions do not have an obligation to allow misbehavior by their fellows. Here, we see the light of day thrown on a very, very standard approach to resolving cases at the financial regulators. They take a difficult case and settle it with the (likely bad-guy) respondent not admitting guilt, and simply instituting some variety of a injunctive order. At NASD, we used to call the most serious of these OPI, (Order of Permanent Injunction). That was because potentially barrable offenses often were treated with OPI in SEC settlements. Also, as the court notes, we see a shell game style trick, where the 33 million fine is actually like a parking fine of one dollar....no one would blink an eye at such a charge. BofA will not need to worry about this individual amount since it will only, at worst, occupy two digit info on its financials (which are denominated in millions). while one political party points at the other for their involvement in regulatory failings, we need to understand that the problem with regulation in the United States is not a lack of total regulatory staff, or shortage of available agencies, nor of laws to fight wrongdoing. The problem with regulation is like most of the problems with government at all levels here: Government is not functioning properly. We no longer have the best and brightest working in governemnt, and when the best do get involved in government they often are shunted away, or are destroyed (I'm thinking of a few very strong folk who have succumbed to scandal or to politics). I do not know how this country will return to service by our finest citizens, whether through growing interest in improving government, or through the change brought on by government collapse. I pray that the United States stays united, and that it learns what our founders intended to be the basis of our country--involvement by citizens and by our most resourceful representatives and leaders. So, a smart NASD-er would know that an OPI was just about as serious as they come and would examine that member or broker with an eye toward likely violations and trickery.