10-11-05 SEC V BAC 1-09-cv-06829 at The US District Court Southern District of New York - New York Times Reports-S

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10-11-05 SEC v BAC (1:09-cv -6829) at the US District Court, Southern District of New York –
New York Times reports
The litigation of the case was extensively covered by major US media outlets, and also by international
media. The New York Times and Wall Street Journal each published multiple reports during the course
of the litigation. However, there is no reason to assume that any media, which reported of the litigation
ever gained access to authenticated records in the case. Moreover, notices were forwarded to media
outlet regarding the denial of access to court records. Regardless, media continued to report on the case,
with no basis in valid and effectual court records.
Following are sample reports from the New York Times:
1. 09-08-11 Judge Attacks Merrill Pre-Merger Bonuses – NYTimes
2. 09-08-15 Talking Business - Thumbs Down From the Bench on Two U.S. Deals – NYTimes
3. 09-08-24 Plain Talk From Judge Weighing Merrill Case – NYTimes
4. 09-08-26 Judge Wants More Explanation on Merrill Case – NYTimes
5. 09-09-09 S.E.C. Defends Its Settlement in Merrill Takeover – NYTimes
6. 09-09-15 S.E.C. Settlement With Bank Over Merrill Bonuses Is Rejected – NYTimes
7. 10-02-08 Judge Rakoff Questions Bank of America Deal With S.E.C. – NYTimes
8. 10-02-18 Bank of America Opposes Judge's Proposal for an Outside Pay Consultant – NYTimes
9. 10-02-23 Judge Accepts S.E.C. Deal With Bank of America Over Merrill – NYTimes
10. 10-08-23 Judges Sound Off on Bank Settlements – NYTimes
11/5/2010 Judge Attacks Merrill Pre-Merger Bonu…
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August 11, 2009
Judge Attacks Merrill Pre-Merger Bonuses

By LOUISE ST ORY
Reigniting a major controversy over Wall Street pay, a federal judge on Monday sharply
criticized the bonuses that Merrill Lynch hurriedly paid out before it was acquired by Bank of
America last year and pointedly questioned a federal settlement that had seemed to put the
issue to rest.
A week after the Securities and Exchange Commission announced that it had settled the matter,
Judge Jed S. Rakoff questioned whether the $33 million agreement with Bank of America was
adequate. He refused to approve the deal, saying too many questions remained unanswered,
including who knew what and when about the controversial payouts.
His ruling prolongs what has become a major embarrassment for Bank of America and its chief
executive, Kenneth D. Lewis, and also deals a stinging blow to the S.E.C., which needs Judge
Rakoff’s approval of its deal with the bank.
Judge Rakoff ordered the bank and the commission to submit more information to him within
two weeks.
During a hearing in New York that was heated at times, the judge was scathing about the
settlement, in which the S.E.C. accused Bank of America of misleading its shareholders. Bank of
America neither admitted nor denied wrongdoing.
Bank of America and Merrill Lynch, Judge Rakoff said, “effectively lied to their shareholders.”
The $3.6 billion in bonuses paid by Merrill as the ailing brokerage giant was taken over by the
bank was effectively “from Uncle Sam.”
The Merrill bonuses, which were the subject of a state investigation and prompted an outcry in
Congress, were paid even though Merrill Lynch lost $27 billion last year. Its deepening red ink
later forced Bank of America to seek a second taxpayer-financed bailout
“Do Wall Street people expect to be paid large bonuses in years when their company lost $27
billion?” the judge asked.
Judge Rakoff, who took an active role in the S.E.C.’s case against WorldCom, is yet another voice
in a growing chorus of critics of the Bank of America-Merrill deal, which was forged in the heat
of the financial crisis last fall. Both the S.E.C. and Bank of America defended the settlement. The
bank’s fine, however, represented a small fraction of the bonuses paid out by Merrill Lynch, a
nytimes.com/2009/08/11/…/11bank.ht… 1/3
fact the judge and other critics seized on. In fact, at least one individual at Merrill Lynch
collected a bonus totaling more than that amount.
The judge characterized the $33 million fine as “strangely askew” given the accusations made,
the magnitude of Merrill’s losses and the subsequent bailout for Bank of America. The judge
questioned the role of top executives at the companies, in particular Mr. Lewis and John A.
Thain, the former chief executive of Merrill Lynch, both of whom signed off on a proxy
statement to investors.
“Was there some sort of ghost that performed those actions?” Judge Rakoff said.
The S.E.C.’s complaint focused on a document that detailed the bonuses, but which was not
included in the merger agreement or proxy statement that was sent to the companies’
shareholders, who voted to approve the merger on Dec. 5.
The S.E.C.’s lawyer, David Rosenfeld, said repeatedly during the hearing Monday that the
agency had chosen not to make allegations against individuals in the case.
Mr. Rosenfeld spoke softly and was called up to the microphone after Judge Rakoff criticized the
S.E.C. for the evidence it had presented — or failed to. The judge said the commission was
remiss for not determining who at the companies decided not to disclose the bonus agreement.
And he suggested that they should have interviewed the external lawyers for both companies.
“You filed a rather uninformative, bare-bones complaint,” Judge Rakoff said.
Lewis J. Liman, a lawyer representing Bank of America, told the judge, when prodded, that the
bank believed it had not wronged its shareholders. Mr. Liman, son of Arthur L. Liman, the
lawyer who led the Iran-contra investigation in the Senate, seemed at times dismissive, saying
at one point: “My God! Bonuses on Wall Street? It is not a matter of surprise.”
Merrill had little choice but to pay many of the bonuses, Mr. Liman said. Of the $3.6 billion,
Merrill had committed $850 million in the form of guaranteed bonuses. Mr. Liman said the rest
of the money was shared among 39,000 workers who received average payments of $91,000 —
though he did not mention that there were 696 people at Merrill who made more than $1
million in bonuses.
“I’m glad you think that $91,000 is not a lot of money,” the judge said. “I wish the average
American was making $91,000.”
Mr. Liman agreed that $91,000 was quite a lot.
Judge Rakoff said he might hold another hearing to consider evidence of whether the bonuses
were needed. He said he might want to know if Merrill’s management studied how many of the
roughly 39,000 bonus recipients would have left had they not received their payouts.
Mr. Liman said the bank could prove in litigation that there were a number of companies that
might have hired Merrill’s employees.
Mr. Rosenfeld of the S.E.C. said he had based the fine in part on a case the agency filed against
Wachovia over disclosure issues in 2001. That case involved disclosure of a stock buyback
program that cost $500 million.
The lawyer for Bank of America periodically whispered what appeared to be suggestions to Mr.
Rosenfeld. One point that Mr. Liman emphasized was that the $3.6 billion was paid with funds
other than the federal bailout money, and he said that if the bonuses were a problem simply
because of the bank received aid, other banks that had received bailouts might face similar
allegations.
The judge was unmoved. “Money is money, the last time I checked,” Judge Rakoff responded.
Copyright 2009 The New York Times Company
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11/5/2010 Talking Business - Thumbs Down From…
August 15, 2009
T ALKING BUSINESS
A Tale of Two Judges

By JOE NOCERA
Jed S. Rakoff and Richard J. Sullivan, both judges on the Federal District Court, have
courtrooms seven floors apart in the United States courthouse in Lower Manhattan. Judge
Rakoff, appointed by Bill Clinton in 1996, is a veteran of the bench, with a well-earned
reputation for being a jurist’s jurist. With his white beard, he looks a little like Santa Claus, only
more distinguished. He is 66 years old.
Judge Sullivan is a relative newcomer to the bench. A veteran prosecutor, he became a federal
judge two years ago. In his courtroom, he sounds almost like a radio announcer, with a big
baritone and a pleasant, gracious manner. He is 45 years old.
This week, from their separate courtrooms and their different places in the judicial pecking
order, the two men did something pretty unusual. Handed prearranged deals on matters of
intense interest to the country, they both said no.
On Monday, Judge Rakoff refused to accept a consent decree that had been negotiated between
the Securities and Exchange Commission and Bank of America revolving around the bank’s
disclosure — or, rather, lack of disclosure — of those infamous Merrill Lynch bonuses. He
questioned the size of the fine — $33 million — compared to the $3.6 billion in bonus money
Merrill Lynch paid out to its executives. He wondered about the S.E.C.’s failure to name anyone
who’d been involved in the wrongdoing, and, indeed, he was none too happy with the
complaint’s own lack of disclosure.
“Despite the public importance of this case,” he wrote, “the proposed consent judgment would
leave uncertain the truth of the very serious allegations made in the complaint.” At the hearing,
the S.E.C. and Bank of America’s lawyers appeared to be utterly unprepared for the judge’s
blunt, elemental, but tough-minded questions. It ended with him ordering the lawyers to come
back with the “who, the what and the where.” Judge Rakoff wants, you know, some facts.
Then, on Tuesday, Judge Sullivan refused to accept the bail arrangement negotiated between
the United States attorney’s office and lawyers for Frank DiPascali. Mr. DiPascali, who spent
most of his career as Bernard Madoff’s right-hand man in carrying out his Ponzi scheme, is now
a critical government witness. The prosecutors wanted him to stay out of jail until his
sentencing next May.
At Tuesday’s hearing, Mr. DiPascali confessed his crimes, and that is what made the headlines.
nytimes.com/2009/08/…/15nocera.htm… 1/4
But instead of being able to stay out of jail, on a $2.5 million bond partly secured by his sister’s
house, Mr. DiPascali was carted off in handcuffs to the Metropolitan Corrections Center, the
same tough lockup where Mr. Madoff was housed before he was sentenced earlier this summer.
This was a shock not just to Mr. DiPascali and his family, but to the prosecutors, who pleaded
with Judge Sullivan to let him remain free so he could continue cooperating unfettered by strict
jailhouse rules. Judge Sullivan refused, saying that Mr. DiPascali was a flight risk — something
he almost surely is not.
People who were in the two courtrooms this week (I was not) would later describe the oddity of
seeing lawyers on opposite sides, who are supposed to be antagonists, acting in near desperate
concert, as they tried to persuade the judges to go along with their deals. Yet for all the
similarities between the judges’ actions, it strikes me that there is one huge difference. Judge
Rakoff’s refusal to go along is in the public interest. Judge Sullivan’s, however, is quite likely not.
It is easy enough to see why Judge Rakoff wants some answers: you can’t read the S.E.C.’s
complaint and not think that the agency has blown the lid off a cover-up. According to the
S.E.C., the Bank of America proxy that was sent to shareholders last fall, before their approval
of the merger with Merrill Lynch, contained “materially false and misleading” information. To
put it plainly, the proxy didn’t come clean about those Merrill bonuses.
In the proxy, the S.E.C. wrote, “Bank of America represented that Merrill had agreed not to pay
year-end performance bonuses.” In truth, of course, the bank had agreed that Merrill could pay
big bonuses. In the proxy, Bank of America referred to “exceptions” listed in a separate
schedule — which, son of a gun, included the news that it had, in fact, already given Merrill the
go-ahead on those bonuses. But the bank never attached that schedule to the proxy material.
So shareholders voted on the deal not knowing about them.
Sounds pretty bad, doesn’t it? Certainly, that is what Judge Rakoff thought — and why wouldn’t
he? The Bank of America-Merrill deal has been the subject of controversy for months. Answers
to basic questions, like whether the government forced Bank of America to complete the merger
against its will and when Bank of America knew about the size of Merrill’s fourth-quarter losses,
have been hard to come by. Although the deal was probably necessary to help get us through
the financial crisis, everything about it has seemed a little fishy. The failure to come clean about
the bonuses in the proxy material just adds to the overall fishiness.
The S.E.C. now says that the mistake made by Bank of America was just that: a mistake, and
not an example of outright fraud. That, the agency says, is why the fine is only $33 million and
why it did not name the individuals who had made the mistake or give a blow-by-blow account
of what had occurred behind the scenes.
And maybe the agency is right. But given the extent to which other agencies of government —
specifically the Federal Reserve and the Treasury — want the Merrill bonus furor to just go
away, it is easy to suspect that the S.E.C., too, was trying to sweep the whole matter under the
rug. (The agency fervently denies this.) And that is what Judge Rakoff is refusing to allow.
The questions he asked on Monday were the kinds of basic questions the country has been
asking for months: if Merrill hadn’t paid those bonuses, wouldn’t its losses have been reduced
by $3.6 billion? And wouldn’t that have meant that Bank of America needed less government
assistance? And to what extent were the Merrill bonuses borne by the taxpayers?
The S.E.C. insists that the deal it struck with Bank of America was a good one, commensurate
with the bank’s offense. And maybe Judge Rakoff will agree. But before he does, the country
will at least have a few of the answers it has been seeking. It’s long overdue.
As for Judge Sullivan, it is also easy enough to understand why he would want to throw Frank
DiPascali in the slammer. This is the Madoff case, for crying out loud. And by his own admission,
Mr. DiPascali was Mr. Madoff’s chief enabler, doing everything from ginning up fake monthly
statements to having computer programmers write software to make it appear that the firm
was actively trading. Mr. DiPascali is facing up to 125 years in prison.
On the other hand, with Mr. Madoff refusing to cooperate, Mr. DiPascali has become the key to
cracking the case. To read his boilerplate description of the Ponzi scheme, contained in the
government’s charges against him, it was a highly complex affair — far more complex, ironically,
than managing real money — and required a staff of people to carry it out. Clearly, Mr. DiPascali
is telling the government who else was involved and what they did.
Just as important, he is in a position to tell the government which of the feeder funds might
have been in on the scam and which were hoodwinked, and which of Mr. Madoff’s big investors
most likely knew what was going on. According to a Fortune magazine article published in April,
around the same time Mr. DiPascali was negotiating his agreement to cooperate, “He is
prepared to testify that he manipulated phony returns on behalf of some key Madoff investors,
including Frank Avellino, who used to run a so-called feeder fund” — and Jeffry Picower, an
investor who took out $5 billion more than he put in from his account with Mr. Madoff. Mr.
Avellino and Mr. Picower insist that they didn’t know that Mr. Madoff was running a Ponzi
scheme. (The Fortune article also said that Mr. DiPascali had no evidence against other Madoff
family members.)
The government badly needs Mr. DiPascali to keep cooperating, and it is going to need others to
cooperate as well. But if prosecutors can’t deliver on something as simple as a bail arrangement,
what incentive are others going to have to cooperate? Gerald Shargel, a noted New York
defense attorney, told me that Judge Sullivan’s decision to put Mr. DiPascali in prison
immediately was “a severe blow to the government’s ability to enlist cooperators.”
Indeed, one has to wonder whether Mr. DiPascali will keep helping the government, given that
he was carted away to the M.C.C. instead of going free on bail. Even if he does keep cooperating,
doing it from the M.C.C., where he is not even allowed to have documents to study, will be much
more difficult for all concerned.
Mr. DiPascali’s chief incentive all along has been that the prosecutors will ask the judge for
leniency, so that he won’t spend the rest of his life in prison. But guess who is sentencing him?
Judge Sullivan, who is under no obligation to show mercy, no matter what the government asks.
Given what just happened, Mr. DiPascali has to be wondering if the judge is going to ignore the
prosecutors at sentencing time, just as he did this week.
The good news is that Judge Sullivan has made it clear he will entertain a new, tougher bail
arrangement. Prosecutors will be back soon, I suspect, with a new plan that is likely to include
house arrest and an electronic ankle bracelet to help assure the judge that Mr. DiPascali won’t
be fleeing before his sentencing.
At which point, let’s hope, he’ll start spilling the beans again — and we’ll finally get to the
bottom of the Madoff scandal.
11/5/2010 Plain Talk From Judge Weighing Merrill…
August 24, 2009
Plain Talk From Judge Weighing Merrill Case

By LOUISE ST ORY
Jed S. Rakoff, a United States District Court judge in Manhattan, is not one to rubber-stamp
administrative decisions.
Known as a maverick in legal circles, Judge Rakoff has in the past found the death penalty
illegal, inserted himself into corporate governance reform at WorldCom, and pushed for the
release of documents in private settlements.
Now he is tussling with the Securities and Exchange Commission and Bank of America, which
will both file reports to him Monday detailing who knew what about $3.6 billion in bonuses paid
out by Merrill Lynch just before Bank of America took it over last year.
The Merrill payouts have been at the center of hearings in Congress as well as an investigation
by the New York attorney general. But Judge Rakoff is the first to demand that Bank of
America reveal who decided not to disclose the bonuses to shareholders before the merger with
Merrill closed.
In an interview last week, shortly after he rejected a settlement between the agency and the
bank that was meant to put the matter to rest, he remembered a time when executives were
held more directly accountable for actions taken by their companies.
Decades ago, when he began his career in the securities fraud unit of the Southern District of
New York, prosecutors placed greater accountability on individual executives at companies, he
recalled. Charges tended to be filed mostly against those people, rather than against the
corporation.
“The feeling then,” he said, “was if a crime had been committed, it was important to discover
who the persons were who made the wrongful decisions.”
Now Judge Rakoff is raising questions about executives at Bank of America, as well as the
S.E.C.’s logic in imposing a $33 million fine on the bank. At a hearing Aug. 11, he said it appeared
the bank had “effectively lied to its shareholders” about Merrill’s bonuses, which he said had
been paid by American taxpayers, since the bank received a second bailout shortly afterward.
And besides, he wanted to know, shouldn’t a much higher fine be imposed directly on “the
individuals who were responsible” for the mess?
It is not the first time Judge Rakoff has ruffled feathers in the business world. In 2003, for
nytimes.com/2009/08/…/24judge.html?… 1/3
example, he refused to approve what he saw as a low settlement the S.E.C. had negotiated with
WorldCom, the phone company that collapsed in an $11 billion accounting fraud.
Lawyers said Judge Rakoff is known for his push for transparency, which he believes is needed
for the courts to keep the public’s confidence. For instance, he has some of the strictest rules
limiting what sorts of material in cases before him may be kept confidential, said Gregory
Diskant, a lawyer who worked with Judge Rakoff in the 1970s, when they were both federal
prosecutors. (Judge Rakoff also recently ruled in favor of The New York Times in a freedom of
information act case.)
“Everything needs to be public,” the judge said. “The legitimacy of the courts comes from the
fact that they reason openly, on the record, based on facts.”
The facts, of course, have been particularly elusive in Bank of America’s merger with Merrill
Lynch. Even after a series of hearings before Congress, and an investigation by the New York
attorney general, it remains unclear who at the bank knew what about Merrill’s bonuses or its
mounting losses on the eve of the merger. The judge will release the bank’s and commission’s
filings on Monday.
At the heart of Judge Rakoff’s inquiry is a question of blame. The S.E.C.’s complaint against
Bank of America made no charges against individuals, meaning that the fine the agency imposed
would be paid by the bank’s shareholders — the very people who were allegedly harmed by the
bank’s secrecy.
Rewarding — and punishing — the right parties was at the fore of Judge Rakoff’s thinking in the
WorldCom case six years ago. Shareholders of that company had already lost out. So when the
judge forced the S.E.C. to increase the $500 million fine it was levying against the firm to $750
million, he also demanded that the money be paid out to the company’s shareholders, rather
than to the agency.
But he also decided not to make the fine too high.
“I could have put the company out of business,” he acknowledged. “But it seemed to me that
would have been 60,000 jobs needlessly lost.”
To put the company on a healthier track, he then oversaw a review of WorldCom’s corporate
governance practices.
It is the kind of intervention that would make many a spine shiver on Wall Street, where banks
have generally tried to keep the government out of their business even as they have accepted
bailout money.
When asked if he is anti-Wall Street, however, Judge Rakoff sat straight up. “The plaintiffs bar
sometimes thinks I’m pro,” he said, adding that he had dismissed a number of shareholder
cases against companies for lack of evidence.
Changing the subject, he rose and walked to a corner of his office, where he pointed to a photo
montage from the court’s annual Courthouse Follies. There stood three singing hobos, judges all,
performing a song written by Judge Rakoff. One of his singing partners had a familiar look — it
was Sonia Sotomayor, the recently appointed Supreme Court justice. She wore a red bandanna,
while Judge Rakoff sported a fake black tooth and smudges on his cheeks.
“I have a past of making a fool of myself,” he said, chuckling.
He also presented a visitor with a copy of a mock legal opinion he recently wrote — this one in
favor of a banker. The ruling, written partly as a poem, was based on “The Merchant of Venice”
by Shakespeare. Judge Rakoff ruled that Shylock, the Venetian money lender, should win his
appeal to receive some recompense from Antonio, a borrower — even if it wasn’t a pound of
flesh.
The judge declined to discuss his plans for Bank of America, but lawyers said the judge might
hold another hearing with both sides after receiving the filings and responses he has requested.
If he does not approve the settlement, the S.E.C. could choose to drop the case, renegotiate the
settlement or take Bank of America to court.
In the meantime, Wall Street could be in for a bit more blunt talk from the bench.
“The S.E.C. has to have noticed by now that most of the country agrees with the sentiments
expressed by Rakoff,” said John C. Coffee, a Columbia Law School professor who has taught a
course along with Judge Rakoff for 21 years. “This builds up pressure on Bank of America and
the S.E.C.”
11/5/2010 Judge Wants More Explanation on Mer…
August 26, 2009
Scrutiny for S.E.C. on Merrill Bonuses

By LOUISE ST ORY
A federal judge told the Securities and Exchange Commission on Tuesday to give a better
explanation of why it had agreed to a settlement with Bank of America over bonus disclosures
without pressing the bank’s executives harder.
The order, by Judge Jed S. Rakoff, came a day after the agency revealed that lawyers advised
Bank of America’s executives not to disclose in a shareholder proxy billions of dollars in bonuses
paid by Merrill Lynch just before the two merged.
This month the judge asked the two sides to say who at the bank had made the decision not to
disclose Merrill’s planned bonuses just ahead of a shareholder vote on the merger.
Both responded in a filing Monday by citing lawyers for the bank, although Bank of America did
not name the executives who had approved the lawyers’ decisions. The S.E.C. said it had not
pressed the issue further because the bank wanted its communications with its lawyers to
remain private under attorney-client privilege. And without such information, the S.E.C. could
not consider charges against individuals at the bank.
Responding swiftly, the judge questioned why the S.E.C. did not insist that Bank of America
waive attorney-client privilege before striking a $33 million settlement. He also questioned
whether bank executives — or the outside lawyers — should be charged in the case.
“If the company does not waive the privilege,” the judge wrote in his order, “the culpability of
both the corporate officer and the company counsel will remain beyond scrutiny. This seems so
at war with common sense.” The judge added that the filings Monday by the S.E.C. and Bank of
America raised more questions than they answered, and set a deadline of Sept. 9 for both
parties to come back with fuller explanations of who should be held accountable for the bonus
disclosure decision.
“It is extremely unusual for a judge to want to look under the bonnet,” said George B.
Newhouse Jr., a former prosecutor and now a partner at Brown, White & Newhouse, a law firm
in Los Angeles. “Implicitly, the judge is questioning whether the S.E.C. have given away the
farm.”
The bank may have already effectively waived its ability to protect its lawyers by testifying
about their role to the S.E.C., Mr. Newhouse added.
11/5/2010 Judge Wants More Explanation on Mer…
The case centers on $3.6 billion bonuses that were paid out by Merrill Lynch late last year, just
before that firm was merged with Bank of America. Neither company disclosed the bonuses to
shareholders, and the S.E.C. has charged that the companies’ proxy statement about the
merger were misleading in their description of the bonuses.
In a statement Tuesday, a Bank of America spokesman said the bonuses would not have had a
big effect on the shareholder vote.
“We presented to shareholders the strategic logic of the Bank of America and Merrill Lynch
combination and we believe that is what shareholders were voting for,” said Lawrence Di Rita,
the spokesman.
Bank of America settled the S.E.C.’s allegations this month for a fine. Judge Rakoff, who works
in the Southern District of New York, was assigned to decide whether to approve the settlement
and has taken the unusual step of raising questions about it.
After the S.E.C. and the bank reply in two weeks, the judge will decide whether to hold a second
hearing. Ultimately, the judge will decide whether to reject the settlement, and if he does, that
will send the S.E.C. back to the bargaining table with the bank. The S.E.C. could also choose to
take the case to court or drop it.
11/5/2010 S.E.C. Defends Its Settlement in Merrill …
Septem ber 10, 2009
S.E.C. Defends Deal in Merrill Takeover

By ZACHERY KOUWE
The Securities and Exchange Commission on Wednesday defended its proposed $33 million
settlement with Bank of America over bonuses paid to Merrill Lynch executives just before the
bank took over Merrill last year.
The S.E.C. said in a federal court filing that the settlement was “fair” and “reasonable” and that
it had lacked enough evidence to charge individuals at the bank with misleading shareholders
about the $3.6 billion in bonuses paid to Merrill employees.
In its own legal filing, Bank of America maintained its previous stance that “there is no evidence
that any individual is culpable” and said it had agreed to the settlement with the S.E.C. to avoid
a protracted public court fight that could potentially damage its reputation.
On Aug. 25, Judge Jed S. Rakoff of the United States District Court in Manhattan refused to
approve the proposed settlement until he received an explanation about why the S.E.C. had
failed to pursue charges against individuals at the bank.
Even as Bank of America was defending itself in federal court, it moved a day closer to facing
potential charges from Andrew M. Cuomo, the New York attorney general, regarding the
Merrill acquisition.
The bank’s lawyers sharply rejected an assertion by the attorney general’s office that the bank
was hiding behind attorney-client privilege to avoid disclosing crucial facts.
In a strongly worded letter, the bank’s lawyer, Lewis J. Liman of Cleary, Gottlieb, Steen &
Hamilton, wrote that Bank of America was “extremely surprised and disappointed” when it
received a letter on Tuesday from the attorney general’s office, and said that its basic premise
was wrong.
Mr. Cuomo’s office has been investigating several aspects of the takeover of Merrill, including
when and how the bank had decided to disclose unexpected losses at Merrill as well as the
bonuses paid to Merrill employees.
The letter on Tuesday from David A. Markowitz, the chief of Mr. Cuomo’s Investor Protection
Bureau, said that “attorney-client privilege is hindering this office’s ability to make fair and fully
informed decisions as to what charges, if any, to bring and whether individual Bank of America
officers should be charged.”
11/5/2010 S.E.C. Defends Its Settlement in Merrill …
In its response, Bank of America disputed that assertion on several fronts, writing that “because
Bank of America did not violate the law, it has not offered reliance on legal advice as a defense.”
The letter, addressed to Eric O. Corngold, Mr. Cuomo’s executive deputy attorney general for
economic justice, also said that Bank of America had offered several times to meet with Mr.
Cuomo’s office to explain its side of the case but had been rejected each time.
On Tuesday, Mr. Cuomo’s office said it was nearing a decision on whether to file fraud charges
against Bank of America or any of its executives. It has given the bank until Monday to provide
details on the Merrill deal.
In seeking approval to buy Merrill Lynch last year, Bank of America told investors that Merrill
would not pay year-end bonuses without the bank’s consent. But in its complaint filed Aug. 3 in
federal court in Manhattan, the S.E.C. said Bank of America had already authorized Merrill to
pay bonuses and had not shared that information with shareholders.
11/5/2010 S.E.C. Settlement With Bank Over Merri…
Septem ber 15, 2009
Judge Rejects Settlement Over Merrill Bonuses

By ZACHERY KOUWE
As President Obama traveled to Wall Street on Monday and chided bankers for their
recklessness, across town a federal judge issued a far sharper rebuke, not just for some of the
financiers but for their regulators in Washington as well.
Giving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff
issued a scathing ruling on one of the watershed moments of the financial crisis: the star-
crossed takeover of Merrill Lynch by the now-struggling Bank of America.
Judge Rakoff refused to approve a $33 million deal that would have settled a lawsuit filed by the
Securities and Exchange Commission against the Bank of America. The lawsuit alleged that the
bank failed to adequately disclose the bonuses that were paid by Merrill before the merger,
which was completed in January at regulators’ behest as Merrill foundered.
He accused the S.E.C. of failing in its role as Wall Street’s top cop by going too easy on one of the
biggest banks it regulates. And he accused executives of the Bank of America of failing to take
responsibility for actions that blindsided its shareholders and the taxpayers who bailed out the
bank at the height of the crisis.
The sharply worded ruling, which invoked justice and morality, seemed to speak not only to the
controversial deal, but also to the anger across the nation over the excesses that led to the
financial crisis, and the lax regulation in Washington that permitted those excesses to flourish.
Implicit in the judge’s remarks were broader questions on the anniversary of one of the most
tumultuous weeks in Wall Street’s history: What do the giants of finance owe their shareholders
and the investing public? And who will adequately oversee these behemoths?
Congress is pondering these issues as it prepares to reshape the power structure of financial
regulators in Washington, including the S.E.C. President Obama is pushing lawmakers to pass
tougher regulations this year that would touch everything from bonuses to the structural
soundness of Wall Street’s most powerful banks, even as some Democrats fret that the health
care debate makes it unlikely that financial reform can be achieved.
“We will not go back to the days of reckless behavior and unchecked excess at the heart of this
crisis,” Mr. Obama said in his speech before several hundred banking executives, lawmakers
and Mayor Michael R. Bloomberg of New York.
Such consequences were at the heart of the dispute that came before Judge Rakoff, who had
demanded that the S.E.C. and the bank explain which executives were responsible for failing to
tell the bank’s shareholders about the payout of Merrill’s bonuses. That information, together
with evidence of large undisclosed losses at Merrill, may have led shareholders to reject the
merger at a time when the government wanted to forestall a worse meltdown of the financial
system.
The judge accused Bank of America and the S.E.C. of concocting the settlement to effectively
absolve themselves of further responsibility.
“The S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a
high-profile merger,” he wrote, and “the Bank’s management gets to claim that they have been
coerced into an onerous settlement by overzealous regulators.”
The ruling echoes a long-standing criticism that the S.E.C. has largely failed to prosecute cases
against corporate executives, opting for quick settlements in which companies themselves are
penalized instead of their leaders.
It comes as the agency, under its new leader, Mary L. Schapiro, is struggling to revive its
reputation as an effective watchdog of Wall Street after presiding over a near-collapse of the
financial markets and failing to catch the $65 billion Ponzi scheme run by Bernard L. Madoff.
Judge Rakoff called the $33 million settlement unfair and inadequate, and ordered Bank of
America and the S.E.C. to prepare for a possible trial that would begin by Feb. 1.
Both the bank and the S.E.C. said they disagreed with the judge’s decision and were evaluating
their legal options. Experts said the S.E.C. could decide to appeal the case to a higher court or
drop the charges altogether instead of going to trial, but they said the agency was unlikely to
exercise those options. Some analysts argued the case itself was irrelevant given that Bank of
America’s takeover of Merrill had increased the bank’s profits, resulting in a surge in its stock
price.
The deal also saved Merrill from impending collapse and arguably prevented a greater financial
calamity from unfolding in the immediate aftermath of the Lehman Brothers bankruptcy.
“I’m having a difficult time understanding who was harmed here,” said Richard X. Bove, a
banking analyst with Rochdale Securities. “Why is this company being put into court over a
series of events that benefited the nation, its economy, its financial system, the shareholders of
Bank of America and the bank itself.”
In forcing the two sides to argue their case in court, Judge Rakoff hopes to expose the truth
about whether Bank of America lied to shareholders.
“It’s a strong, blistering decision,” said John C. Coffee, a Columbia Law School professor who has
taught a course along with Judge Rakoff for 21 years. “It is really a critique, not just of this case,
but of a long-standing practice at the S.E.C., which effectively allowed corporate managers to
buy immunity with their shareholders’ money.”
Judge Rakoff focused much of his criticism on the fact that the fine in the case would be paid by
the bank’s shareholders.
“It is quite something else for the very management that is accused of having lied to its
shareholders to determine how much of those victims’ money should be used to make the case
against the management go away,” Judge Rakoff wrote.
The case is one of several investigations into the bank’s $50 billion deal with Merrill. Andrew M.
Cuomo, the attorney general of New York, is also investigating the disclosures of bonuses and
Merrill’s losses last year.
Mr. Cuomo plans to file a complaint charging individuals at Bank of America in the next two
weeks, according to a person briefed on the investigation.
The House Committee on Government Oversight and Reform is also looking into the merger.
Louise Story contributed reporting.
11/5/2010 Judge Rakoff Questions Bank of Ameri…
February 9, 2010
Judge Questions Bank of America’s New Deal With

S.E.C.
By LOUISE ST ORY
A federal judge left open the possibility on Monday that he might reject a new $150 million
settlement between the Securities and Exchange Commission and Bank of America over the
bank’s controversial takeover of Merrill Lynch, a move that could force the case to go to trial.
Judge Jed S. Rakoff, in a United States District Court hearing in Manhattan, pointedly
questioned the settlement, which was announced last week. Earlier he rejected as too low a $33
million deal in what was widely seen as a black eye for the S.E.C.
“So, welcome back,” Judge Rakoff told a phalanx of lawyers from the S.E.C. and Bank of
America.
The judge said he regarded the $150 million settlement as “still quite small” and suggested that
$300 million or $600 million would be more appropriate. He asked the commission for more
information about its plan to distribute the fine to investors.
The judge also questioned whether there should not be a role for the court to oversee several
corporate governance changes proposed in the settlement. In particular, he said it bothered him
that Bank of America’s compensation committee would be allowed to select the company’s
outside compensation consultant, without oversight by the court or the S.E.C.
Most compensation consultants support “bloated compensation” and do not think broadly about
the right pay levels, the judge said. When a lawyer for Bank of America said the bank generally
did not pay lofty compensation, the judge retorted, “compared with Merrill’s maybe, not
compared with China’s.”
Judge Rakoff also questioned the S.E.C.’s narrative of facts behind Bank of America’s decisions
not to disclose Merrill’s large losses and big bonuses to the bank’s shareholders. The S.E.C.’s
description of several crucial events differs from a similar complaint filed last week by the
attorney general of New York, the judge noted as he read from that case.
In particular, Judge Rakoff asked about Bank of America’s decision to fire Timothy J.
Mayopoulos, its general counsel, in the midst of the merger. The judge said he would like to
personally study the record of evidence to see if there was an indication of intent on the part of
bank executives to mislead shareholders, rather than simple negligence, as the commission has
said.
11/5/2010 Judge Rakoff Questions Bank of Ameri…
Judge Rakoff has routinely expressed a preference for charging individuals, and he said on
Monday that was also the S.E.C.’s publicly stated preference.
The change from the settlement, Judge Rakoff said, “can’t be just window dressing.” He added,
“It’s got to have some potential meaningful effect.”
11/5/2010 Bank of America Opposes Judge's Prop…
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February 18, 2010
Bank of America Opposes Judge's Proposal for an

Outside Pay Consultant
By LOUISE STORY
Bank of America says it is opposed to a judge's proposal to appoint an outside compensation

consultant as part of a settlement with the Securities and Exchange Commission.
For months, Bank of America has been trying to close a case with the federal agency related to
accusations that the bank misled its investors by not disclosing both losses and huge bonuses at
Merrill Lynch on the eve of the merger of the two companies.
Judge Jed S. Rakoff of Federal District Court in Manhattan rejected a settlement between the bank
and the commission last summer. If he rejects the latest settlement, the case will go to trial on
March 1.
Last week, the judge suggested a number of ways to change the terms of the latest, $150 million
proposed settlement, including giving the S.E.C. and the court a role in the selection of the bank's
outside compensation consultant.
In a letter to Judge Rakoff filed late Tuesday, the bank said it would oppose that change to the
settlement, calling its current arrangement with the S.E.C. ''appropriately tailored.''
A lot is at stake for the bank and the commission. Judge Rakoff said he would decide by Monday
whether to accept the S.E.C. settlement.
Compensation is an issue near and dear to Mr. Rakoff's heart, and he mentioned the inequities of
Wall Street pay in his hearing on the bank's settlement last week. The judge, known for his
maverick ways, said the bank's compensation consultant should have a ''breadth of perspective
that is not always part of that field.''
Compensation consultants hired by companies, he said, often support ''bloated compensation.'' He

said he did not see how the selection of the compensation consultant could be responsibly left to
the bank's directors because they might be beholden to the company's management.
The bank said in its letter that the S.E.C. had ''consistently stated that it does not seek to enforce
any particular compensation philosophy or impose any substantive judgments on the form or
query.nytimes.com/gst/fullpage.html?r… 1/2
11/5/2010 Bank of America Opposes Judge's Prop…
amount of compensation.''
The S.E.C. said in a letter filed with the judge on Wednesday that it did not think his proposed
changes were needed but that it would not oppose them.
The bank said it would agree to other changes suggested by the judge, including allowing the court
to settle any disputes between the bank and the S.E.C. over the selection of an auditor and a
lawyer to oversee the bank's future disclosure practices.
The judge is also examining some facts in the case because the S.E.C.'s account differs from a
separate case filed by the attorney general of New Y ork, Andrew M. Cuomo. Some of those facts in
question relate to the firing of the bank's general counsel, Timothy J. Mayopoulos.
Judge Rakoff requested transcripts of five testimonies related to the case from Mr. Cuomo's office.
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11/5/2010 Judge Accepts S.E.C. Deal With Bank of…
February 23, 2010
Judge Accepts S.E.C.’s Deal With Bank of America

By LOUISE ST ORY
In a ruling that freed Bank of America from some legal problems, a federal judge wrote on
Monday that he had reluctantly approved a $150 million settlement with the Securities and
Exchange Commission.
But even as the judge, Jed S. Rakoff of the Southern District of New York, approved the
settlement, he delivered harsh words for the S.E.C., saying that the agreement was “half-baked
justice at best.”
The settlement stems from the bank’s merger with Merrill Lynch at the height of the financial
crisis. In the months before the deal closed, Bank of America did not tell its shareholders about
Merrill’s hefty bonus payouts or the mounting losses that eventually led to a second
government bailout of $20 billion.
In a written opinion released Monday, Judge Rakoff declared that the evidence showed that the
bank had failed to adequately disclose the bonuses and the losses.
However, he said it was unclear if the lack of disclosure had resulted from negligence or ill
intent.
The judge, known for his maverick ways, said the settlement amount was paltry, but he said the
deal, the second one the S.E.C. proposed, had met his minimum threshold for approval.
“This court, while shaking its head, grants the S.E.C.’s motion and approves the proposed
consent judgment,” the judge wrote.
The court order ends a seven-month chapter that began in August when the judge rejected the
S.E.C.’s first settlement, which would have forced the bank to pay $33 million in penalties and
included only a slim statement of the facts in the case. It was, the judge said in his latest ruling,
a “vacuous proposal.” The S.E.C. was forced to come up with something more substantial to
avoid a March 1 trial date that Judge Rakoff had set.
“We are very pleased that the settlement with the S.E.C. has been approved,” Bank of America
said in a statement.
An S.E.C. spokesman, John Nester, said the agency was also pleased with the ruling.
“The settlement was based on a thorough and objective assessment of the facts and the law,”
Mr. Nester said, “and sends a strong message that companies must give shareholders all
material information about corporate transactions subject to shareholder approval.”
Though Bank of America has continued to argue that its disclosures were proper, the judge
made it clear that he disagreed, a view that could add momentum to some of the shareholder
lawsuits related to the case.
“Despite the bank’s somewhat coy refusal to concede the materiality of these nondisclosures, it
seems obvious that a prudent bank shareholder,” the judge wrote, “would have thought twice
about approving the merger or might have sought its renegotiation.”
The bank still faces a complaint filed last month by Andrew M. Cuomo, the attorney general of
New York. The judge, after studying some of the evidence in Mr. Cuomo’s case, left room for
that case to reach a different conclusion than the S.E.C.’s.
In particular, the judge said the S.E.C. had substantial evidence to support the bank’s claim that
the dismissal of its general counsel, Timothy J. Mayopoulos, “was unrelated to the
nondisclosures or to his increasing knowledge of Merrill’s losses.”
That is the position the bank and its executives have argued since last spring, but Mr. Cuomo’s
office asserts that the firing was related to advice from Mr. Mayopoulos.
Judge Rakoff said he had not determined which was right, but he said he was comfortable that
the S.E.C.’s conclusion was reasonable.
“It is important to emphasize, with respect not just to the Mayopoulos termination but with
respect to all the events that the attorney general interprets so very differently from the S.E.C.,
that the court is not here making any determination as to which of the two competing versions
of the events is the correct one,” the judge wrote.
Mr. Cuomo’s complaint differs from the S.E.C.’s in that it charges the bank as well as its former
chief financial officer, Joe Price, and the chief executive, Kenneth D. Lewis, who retired early in
part because of the mounting investigations into the merger.
The judge said in his order that he would have preferred that the fine be paid by the executives
who were responsible for the lack of disclosures, rather than shareholders. The S.E.C. has
worked out a system that will fine mostly the old Merrill shareholders rather than the old Bank
of America shareholders, who were harmed.
The bank and the S.E.C. agreed last week to a few modest changes that the judge had proposed
related to the bank’s corporate governance. The final settlement depends on the parties
submitting the settlement with those changes.
The bank did not agree to the judge’s proposal to allow the S.E.C. and the court to play a role in
its choice of compensation consultants. In his ruling, Judge Rakoff said that refusal was not
enough to persuade him to block the settlement.
As he put out his final words, Judge Rakoff summed up what he thought of the controversial
Merrill deal. It is a “merger that may yet turn out well,” he wrote, “but that could have been a
bank-destroying disaster if the U.S. taxpayer had not saved the day.”
11/5/2010 Judges Sound Off on Bank Settlements…
Reprints
August 23, 2010
U.S. Judges Sound Off on Bank

Settlements
By BINYAMIN APPELBAUM
WASHINGTON — Everything was rolling along traditional lines. A bank broke the rules. The
government found out. The company agreed to pay a fine and improve its behavior.
And then the judge assigned to approve the deal blew his top.
In a scene that is becoming increasingly common, Judge Emmet G. Sullivan of Federal District
Court chewed out federal prosecutors at a hearing in Washington last week for a proposed
settlement with Barclays.
“Why isn’t the government getting tough with banks?” he asked.
Just one day earlier in the same courthouse, Judge Ellen Segal Huvelle refused to sign a
settlement between the government and Citigroup, demanding, “Why would I find this fair and
reasonable?” She ordered government lawyers to return with answers next month.
The scoldings from the bench are a striking departure from a long tradition of judicial deference
to settlements formulated by federal agencies, reflecting broad disenchantment not just with
Wall Street, but with its government overseers.
It is a pattern that began last year, when Judge Jed S. Rakoff of Federal District Court in
Manhattan denounced the Securities and Exchange Commission for going easy on Bank of
America, which the agency had accused of misleading its shareholders.
“The courts are staking out a role that frankly we seem to need,” said Jill E. Fisch, a law
professor at the University of Pennsylvania. “They are standing in for the general public, the
public interest, and demanding more” from regulators.
The immediate impact, however, has varied. Courts have limited power over settlements.
Judge Rakoff persuaded the S.E.C. to punish Bank of America with a larger fine, but Judge
Sullivan gave grudging approval last week to the deal between the Justice Department and
Barclays after airing his concerns for a second day.
nytimes.com/2010/08/…/24judges.html… 1/4
Experts also disagree about the long-term consequences. Some, like Professor Fisch, expect
regulators to seek more punitive settlements. Others said that agencies instead would favor
lenient penalties that do not require judicial review.
M. Todd Henderson, a law professor at the University of Chicago, said the impact would be
determined by the public’s reaction.
“I think it’s a public relations stunt more than anything else,” Professor Henderson said. “The
court is trying to make it public that the government may be cutting cozy deals, because it is the
public that ultimately controls the executive branch,” which includes the Justice Department
and the S.E.C.
Litigants are generally free to settle cases on agreed terms, but the law grants judges a narrow
mandate in some cases to reject settlements that they believe do not serve the public interest.
In the cases at hand, the judges expressed concern that the government was claiming victory
without holding companies properly accountable — an approach Judge Rakoff described last
year as creating a “façade of enforcement.”
The Barclays settlement, which Judge Sullivan approved last week, involved charges that the
British bank helped customers in Iran, Cuba and other sanctioned nations move more than
$500 million into the United States, breaking federal law — and undermining national policy —
for more than a decade. The bank distributed instructions to employees for circumventing
internal controls, for example by obscuring the source of the transfers.
Moreover, employees knew the transfers were illegal.
The cover sheets “must not mention” the offending entity, which could cause the funds to be
seized, one employee wrote in an e-mail quoted by prosecutors. “A good example is Cuba, which
the U.S. says we shouldn’t do business with but we do.”
The Justice Department agreed not to pursue criminal charges against the bank. In exchange,
Barclays admitted to wrongdoing, forfeited $298 million and agreed to improve employee
training.
Justice defended the settlement as a “serious sanction,” and said it did not seek a larger fine
because Barclays had disclosed the crimes and cooperated with prosecutors.
“The public looks at this and says, you know, they’re getting a free ride here,” Judge Sullivan
told government lawyers last Wednesday. He said he had agreed to approve the settlement
despite his concerns because it was not his job to supervise the department.
Under the terms of Citigroup’s proposed settlement, which Judge Huvelle has questioned, the
bank would acknowledge concealing from shareholders the extent of its investment in subprime
mortgages, which totaled more than $50 billion in 2007. The chief financial officer at the time,
Gary L. Crittenden, told investors that the bank’s exposure totaled only $13 billion.
The S.E.C. calculated that the company realized an economic benefit of up to $123 million from
its misrepresentations, but proposed to settle for a fine of $75 million.
“You expect the court to rubber stamp, but we can’t,” Judge Huvelle said.
Judge Rakoff told an audience at Stanford in June that he hoped other judges would follow the
example that he set last year in the Bank of America case. That case, he said, “may enable some
of my colleagues to be a little more proactive in assessing S.E.C. settlements in the future.”
“I like to think that it will contribute to greater justice.”
But David S. Ruder, chairman of the S.E.C. in the late 1980s, said that regulators were in a
better position to determine the fairness of a settlement because they commanded both the
specifics and context of each case.
“It’s my view that by and large the judge ought to give great deference to the judgment of the
agency as to what’s the appropriate punishment,” said Mr. Ruder, now a law professor at
Northwestern University.
The three judges, all appointed to the district courts by President Bill Clinton, have shown
particular frustration with the government’s failure to punish individuals.
Judge Rakoff repeatedly questioned the S.E.C.’s decision not to bring charges against the Bank
of America’s executives. The agency described their conduct as negligent but not fraudulent.
The New York attorney general, Andrew M. Cuomo, has since filed civil fraud charges against
the former chief executive Kenneth D. Lewis and another executive. They have denied the
allegations, and the case is pending.
The Citigroup case includes companion settlements with Mr. Crittenden and another executive.
But the S.E.C. said in its complaint that other executives also had been aware of the
legerdemain, prompting Judge Huvelle to demand an explanation as to why other Citigroup
executives were not cited.
And the Justice Department did not seek to hold any employees responsible for the crimes that
it attributed to Barclays, leading Judge Sullivan to observe that corporations are inanimate
objects.
“You agree there must have been some human being who violated U.S. laws?” he asked the
government’s lead lawyer.
He proceeded to ask that same question in a dozen different ways, growing increasingly
exasperated with the answers, until he finally interrupted the government lawyer to ask, “Can I
just share a thought with you?”
“You know what?” he asked. “If other banks saw that the government was being rough and
tough with banks and requiring banking officials to stand before federal judges and enter pleas
of guilty, that might be a powerful deterrent to this type of conduct.”

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August 11, 2009

Judge Attacks Merrill Pre-Merger Bonuses

“You filed a rather uninformative, bare-bones complaint,” Judge Rakoff said.

Mr. Liman agreed that $91,000 was quite a lot.

Copyright 2009 The New York Times Company

August 15, 2009

A Tale of Two Judges

Copyright 2009 The New York Times Company

August 24, 2009

Plain Talk From Judge Weighing Merrill Case

But he also decided not to make the fine too high.

“I have a past of making a fool of myself,” he said, chuckling.

Copyright 2009 The New York Times Company

August 26, 2009

Scrutiny for S.E.C. on Merrill Bonuses

Copyright 2009 The New York Times Company

Septem ber 10, 2009

S.E.C. Defends Deal in Merrill Takeover

Copyright 2009 The New York Times Company

Septem ber 15, 2009

Judge Rejects Settlement Over Merrill Bonuses

Louise Story contributed reporting.

Copyright 2009 The New York Times Company

Judge Questions Bank of America’s New Deal With

Copyright 2010 The New York Times Company

February 18, 2010

Bank of America Opposes Judge's Proposal for an

Bank of America says it is opposed to a judge's proposal to appoint an outside compensation

Compensation consultants hired by companies, he said, often support ''bloated compensation.'' He

February 23, 2010

Judge Accepts S.E.C.’s Deal With Bank of America

Copyright 2010 The New York Times Company

August 23, 2010

U.S. Judges Sound Off on Bank

“Why isn’t the government getting tough with banks?” he asked.

Moreover, employees knew the transfers were illegal.

“I like to think that it will contribute to greater justice.”

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