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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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Mon, 09/14/2009 - 12:49 | Link to Comment andrew123
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?

Mon, 09/14/2009 - 13:11 | Link to Comment DiverCity
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.

Mon, 09/14/2009 - 13:11 | Link to Comment Hansel
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?

Mon, 09/14/2009 - 13:12 | Link to Comment Cognitive Dissonance
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.

Mon, 09/14/2009 - 13:23 | Link to Comment JohnKing
JohnKing's picture

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

Mon, 09/14/2009 - 13:40 | Link to Comment Anonymous
Mon, 09/14/2009 - 14:02 | Link to Comment debauch
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):

Mon, 09/14/2009 - 12:54 | Link to Comment Project Mayhem
Project Mayhem's picture

wow the SEC is so corrupt it's incredible

Mon, 09/14/2009 - 12:58 | Link to Comment Handle with care
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?



Mon, 09/14/2009 - 13:01 | Link to Comment andrew123
andrew123's picture

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

Mon, 09/14/2009 - 13:06 | Link to Comment Assetman
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.

Mon, 09/14/2009 - 13:27 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:08 | Link to Comment Joe Sixpack
Joe Sixpack's picture

God Bless this judge!

Mon, 09/14/2009 - 15:43 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:08 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:10 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:45 | Link to Comment MsCreant
MsCreant's picture


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

Mon, 09/14/2009 - 13:14 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:14 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:14 | Link to Comment (not verified)
Mon, 09/14/2009 - 13:16 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:50 | Link to Comment lizzy36
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. 

Mon, 09/14/2009 - 13:51 | Link to Comment lizzy36
lizzy36's picture


Mon, 09/14/2009 - 13:16 | Link to Comment ZerOhead
ZerOhead's picture

Rakoff for President 2012

Mon, 09/14/2009 - 13:18 | Link to Comment Anonymous
Mon, 09/14/2009 - 13:40 | Link to Comment Hephasteus
Hephasteus's picture

Resign and take the czars with you.

Mon, 09/14/2009 - 13:41 | Link to Comment Mr. Anonymous
Mr. Anonymous's picture

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

Mon, 09/14/2009 - 13:41 | Link to Comment digalert
digalert's picture

Matching chrome bracelets fully dressed out in ankle shackles.

Mon, 09/14/2009 - 14:00 | Link to Comment MsCreant
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?

Mon, 09/14/2009 - 23:31 | Link to Comment Anonymous
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