Judge Rakoff Rejects Merrill-BofA/SEC Settlement, February 1st Trial Date Set

Tyler Durden's picture

From the Wall Street Journal:

Federal District Judge Jed S. Rakoff rejected a proposed $33 million
settlement of allegations by the Securities and Exchange Commission
that Bank of America Corp. "materially lied" in shareholder communications about bonuses to employees of Merrill Lynch & Co.

Instead, Judge Rakoff set a Feb. 1 trial date on the allegations in his New York courtroom.

The SEC and Bank of America had sought the judge's approval of a
consent decree to resolve charges that the bank concealed an agreement
to pay up to $5.8 billion in bonuses to Merrill executives.

In an order issued Monday, Judge Rakoff acknowledged the public
interest in settling disputes rather than having them go to trial.
Nonetheless, he wrote, "even upon applying the most deferential
standard of review," he was "forced to conclude that the proposed
consent judgment is neither fair, nor reasonable, nor adequate" to
protect the public interest.

In effect, Judge Rakoff found, the settlement would force the
victims of the alleged misstatements--Bank of America shareholders--to
pay an additional $33 million.

"It does not comport with the most elementary notions of justice and
morality, in that it proposes that the shareholders who were the
victims of the bank's alleged misconduct now pay the penalty for that
the judge wrote.

The judge has noted that SEC policy directs that culpable executives
be punished for misleading shareholders, something the commission had
not sought in this case.

And, another key quote from Rakoff, who apparently was never been bought off by Wall Street- SEC complex, and the latter will now regret this for a long time:

"The proposed settlement suggests a rather
cynical relationship between the parties: 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; the bank’s management gets to claim that they have
been coerced into an onerous settlement by overzealous regulators. And
all this is done at the expense, not only of the shareholders, but also
of the truth.”

It is now high time for Mary Schaprio and Ken Lewis to tender their resignations.

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andrew123's picture

I have always wondered about what happens when a sweethart plea bargain is rejected.   What is to prevent the SEC from dropping the case entirely?

DiverCity's picture

If it drops the case, then it looks even worse than it does now, especially given the judge's dicta quoted by ZH.  But even with that I wouldn't put it past the cronies to wiggle out by claiming the case is going to be dropped whilst they further investigate wrongdoing by BAC's principals.

Hansel's picture

Exactly what I want to know.  Is the SEC actually going to have to prepare a case against the company they wanted to let off the hook?

Cognitive Dissonance's picture

In reality, only public pressure could stop the SEC from dropping the case. If they did drop it, it would be an admission of their corruption.

JohnKing's picture

They freely display corruption, why not make it official? It wouldn't surprise me, everybody is stealing in plain sight.

Anonymous's picture

"What is to prevent the SEC from dropping the case entirely?"

Private trial lawyers "representing the shareholders" salivate at the very thought.

debauch's picture

Actually, its not clear what happens.  The SEC has very broad prosecutorial discretion.  It is not clear if it is unfettered.  See the discussion in this case (about Andrew Sullivan's pot bust being withdrawn): http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=collings/...

Project Mayhem's picture

wow the SEC is so corrupt it's incredible

Handle with care's picture

Wow!  Someone in authority in the US is actually not totally corrupted by big money.


Exciting that he proposes to go after the executives.


I also wonder how he can hold a trial without a willing prosecutor?



andrew123's picture

Any chance of getting another pettition for the Schapiro resignation going?

Assetman's picture

The SEC really can't drop this case, which is unfortunate for them.

It is highly likely that BofA had enough on its side to win the case outright if it went into civil proceedings.  While it made some sense for the SEC to settle things out of court, the structure of the award was an absolute atrocity to shareholders.

Now, you basically have a judge outing the SEC for the very poor job it did -- it appears the central tenet of the SEC's existence (investor protection) and what they do in practice (punish shareholders at the expense of executive and BoD's) is diametrically opposed.

Given that, why should the SEC exist, if its not fulfilling its basic mandate?  I'm sure that Mary K. Shapiro has an answer, but nobody's going to like it.

Kudos in this instance goes to Judge Rakoff.

Anonymous's picture

That, and the SEC is asking for mo' money... I'm guessing this tongue lashing from the Judge and the way they've handled this case isn't going to net them much goodwill with a congress that is hell bent on adding more regulation to punish wall street firms (despite looking in the mirror every day to a growing deficit). At any rate, I'd say this case is the line in the sand and the SEC is going to have to start steering a little straighter...

if you want to find the truth, all you have to do is pit two liars against one another.

Joe Sixpack's picture

God Bless this judge!

Anonymous's picture

He will probably meet Him very soon...

Anonymous's picture


About damn time; great to see a real jurist and not a political hack in robes. Combine this decision with the Bloomberg FOIA request, and we may actually get some honest answers about what was going on at the Fed and at Treasury.

This is the best news for taxpayers in months

Anonymous's picture

No way should either one resign. They should instead resort to highly inflammatory accusations, based on true and damning facts, and spin this up into a gloriously hellish inferno that rains fire and brimstone all over DC and Wall Street.

They can resign from prison.

MsCreant's picture


You know, if hell does not exist, we should create one here on earth just to deal with these clowns.

Anonymous's picture

One small step for retail investors, one big "Fuck You" to Mary Schapiro and Ken Lewis.

Anonymous's picture


i love this judge.

shortsail03@yahoo.com's picture
shortsail03@yahoo.com (not verified) Sep 14, 2009 12:14 PM

Give me liberty and give wall st death.....

Anonymous's picture

Call his office up and tell them how much you appreciate what he's doing. I did last week:


lizzy36's picture

Please do not call up judges and thank them for doing their job. Their master is supposed to be the rule of law and their mate is supposed to be objectivity. 

Thanking them for deciding a case in a certain matter is INSULTING. 

ZerOhead's picture

Rakoff for President 2012

Hephasteus's picture

Resign and take the czars with you.

Mr. Anonymous's picture

Methinks the Judge has balls the size of Jupiter.  God or planet, take your pick.

digalert's picture

Matching chrome bracelets fully dressed out in ankle shackles.

MsCreant's picture

Okay, I've got a pitch for a reality TV show called Running Scammer based loosely on the movie Running Man with Arnold S. We start with Ken Lewis and set him loose in New York. Bands of BOA shareholders are each allowed their choice of weapons to use to chase Ken Lewis through Wallstreet. Shareholders have the option of selling their position to a deserving "Hero" who could game in their stead. The Hero would be stuck with the stock.

America would huddle around the tube and bet on how Ken actually gets it. Which Hero will get him? How long will he last? If Ken makes it out, then he gets to go to prison.

Next week, it would be Hank Paulson, through the streets of Washington DC. This show would have the best ratings in history. There are endless fiends and reality gimmicks we could come up with to make the show more interesting. We could just leave Washington DC and Wallstreet burning since they are no good for anything anyway. No need to create an expensive set.

Low cost, profitable (sell advertising), new jobs (gambling), entertaining, cathartic, bring the country together, what is not to like here?

Anonymous's picture

lemme know when tiny tim & fat larry come on...

the wizard of O for that matter.
we'll see who owns the streets of nuyawk.
leave your SS at home sucka