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Rakoff's Approval of Bank of America-S.E.C. Settlement

Rakoff's Approval of Bank of America-S.E.C. Settlement

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Published by DealBook
Opinion by Jed S. Rakoff of the federal district court in Manhattan approving the S.E.C.'s settlement with Bank of America -- but damning it as "half-baked justice at best."
Opinion by Jed S. Rakoff of the federal district court in Manhattan approving the S.E.C.'s settlement with Bank of America -- but damning it as "half-baked justice at best."

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categoriesBusiness/Law, Finance
Published by: DealBook on Feb 22, 2010
Copyright:Attribution Non-commercial

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12/25/2012

 
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
.....................................
X
SECURITIES
AND
EXCHANGE COMMISSION,Plaintiff,09 Civ. 6829 (JSR)BANK OF AMERICA CORPORATIONDefendant.SECURITIES AND EXCHANGE COMMISSION,Plaintiff,10 Civ. 0215 (JSR)BANK OF AMERICA CORPORATIONDefendant.OPINION AND ORDERJED
S.
RAKOFF, U.S.D.J.The question before the Court is whether to grant the motionof plaintiff Securities and Exchange Commission ("S.E.C."), iled onFebruary
4,
2010, seeking approval of a Proposed Consent Judgment thatwould resolve the two above-captioned cases. Given the somewhattortured background of these cases and the difficulties the motionpresents, the Court is tempted to quote the great American philosopherYogi Berra: "I wish I had an answer to that because I'm getting tired
 
of answering that question."' However, after full consideration, theCourt reluctantly grants the motion, on the terms specified below.The Court begins where any court should: with the facts. Indisapproving as neither fair, reasonable, adequate nor in the publicinterest the prior proposed settlement of the first of these twocases, 09 Civ. 6829 (the "Undisclosed Bonuses" case), the Courtbewailed the absence of established facts supporting the proposal andexpressed the hope that "the truth may still emerge." S.E.C. v. Bankof AmericaCorp., 653 F. Supp. 2d 507, 512 (S.D.N.Y. 009). Sincethen, the parties have conducted extensive discovery, assisted by thehelpful decision of defendant Bank of America Corp. (the "Bank") towaive attorney-client privilege, resulting in theS.E.C.'spresentation to this Court of a 35-page Statement of Facts and a 13-page Supplemental Statement of Facts, the accuracy of which is notcontested here by the Bank.' In addition, in response to questions
'
David H. Nathan, Baseball Quotations 150 (1993). Berra, adisciple of the equally profound professor CaseyStengel, has hada notable impact on the development of American law.
See
senerally William D. Araiza et al., The Jurisprudence of YoqiBerra, 46 Emory
L.
.
697 (1997)At the hearing on the instant proposed settlement heldbefore this Court on February 8, 2010, the Court asked counselfor the Bank to affirm "that you have no material quarrel withthe accuracy of the facts set forth in the SEC statement of factsand that the Court can consider those statements of fact asagreed to for the purposes of evaluating the settlement," towhich Bank counsel responded "That's correct, your Honor."Transcript ("tr."), /8/10, at
6.
The Court presumes that if theBank felt any differently about the Supplemental Statement of
 
from the Court in an Order dated February 11, 2010, the parties haveprovided, and the Court has reviewed, hundreds of pages of depositiontestimony and other evidentiary materials bearing on the case.As a result of that review, it is clear to the Court that:(1) the Proxy Statement that the Bank sent to its shareholderson November
3,
2008 soliciting their approval of the merger withMerrill Lynch
&
Co., Inc. ("Merrill") failed adequately to disclosethe Bank's agreement to let Merrill pay its executives and certainother employees $5.8 billion in bonuses at a time when Merrill wassuffering huge losses; and(2) the Bank failed adequately to disclose to its shareholderseither prior to the shareholder approval of the merger on December 5,2008 or prior to the merger's effective date of January 1, 2009 theBank's ever-increasing knowledge that Merrill was sufferinghistorically great losses during the fourth quarter of 2008(ultimately amounting to a net loss of $15.3 billion, the largestquarterly loss in the firm's history) and that Merrill had nonethelessaccelerated the payment to certain executives and other employees ofmore than $3.6 billion in bonuses.Despite the Bank's somewhat coy refusal to concede themateriality of these nondisclosures, it seems obvious that a prudentBank shareholder, if informed of the aforementioned facts, would havethought twice about approving the merger or might have sought itsFacts, it would have so informed the Court.
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