And Mary thought she was going to get away easy...
After the SEC attempted a truly staggering feat of legal contrivance by blaming the Merrill bonus fiasco on "understood" arrangements and placing all the blame on counsel, where the trail would end because Bank of America would never waive attorney-client privileges, Rakoff shot back and told the SEC, in no uncertain terms, to not take him or the legal system for Wall Street's marionettes, a role the SEC is more than happy to play day in and day out.
In this sense, Rakoff's response to the SEC is a masterpiece, which, assuming the Judge is not voluntarily or otherwise silenced, could force Rakoff to rake the SEC over the coals of public humiliation and finally acknowledging its crony lap dog status for a group of wealthy Wall Street insiders who consistently have special status with Mary Schapiro and her henchmen.
Quoting from the order released earlier:
"In its August 24th submission, the SEC repeatedly reconfirms its central assertion that "Bank of America's [proxy] statement was materially false and misleading because it indicated to shareholders that Merrill [Lynch] would only make 'required' payments to its employees, such as salary and benefits, but would not pay discretionary year-end bonuses, [whereas] [i]n fact, Bank of Americas expressly had agreed to allow Merrill to pay up to $5.8 billion in discretionary year-end bonuses." Yet the same submission asserts that the SEC, despite its 2006 policy quoted above, decided not to bring charges against culpable individual offenders because all the company's witnesses "stated that they had relied entirely on counsel to decide what was or was not disclosed in the proxy statement." Further, the SEC asserts that it was unable to test this assertion because "Bank of America has not waived the attorney-client privilege [and] [a]s a result, the investigative record does not include any specific rationale as to why the disclosure schedule [revealing the bonuses] or it contents were not disclosed in the proxy statement."
At this point any lawyer readers can proceed to go ahead and vomit, because, indeed, this is the "defense" used by the SEC. Rakoff has a comparable reaction:
"This is puzzling. If the responsible officers of Bank of America, in sworn testimony to the SEC, all stated that "they relied entirely on counsel," this would seem to be either a flat waiver of privilege or, if privilege is maintained, then entitled to no weight whatever, since the statement cannot be tested. In asserting that no waiver occurred, the SEC cites just one case, John Does Co. v. United States[,] which, on first reading at least seems hardly to support such a broad assertion applicable to the fact here."
The SEC now has full permission to request a doubling of its near-$1 billion budget, as apparently the current money it has barely allows it to only afford the services of 3 year old chimpanzees with less than a month's experience with case law. Continuing with Rakoff's evisceration of the SEC's bidetesque approach to all things legal:
"If the SEC is right in this assertion, it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel, and, if the company does not waive the privilege, the assertion will never be tested, and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny."
And the punchline:
"This seems so at war with common sense that the Court will need to be shown more than a single, distinguishable case to be convinced that it is, indeed, the law. It also leaves open the question of whether, if it was actually the lawyers who made the decisions that resulted in a false proxy statement, they should be held legally responsible."
And how does BofA approach this whole problem: why claiming the world will end of course if it were to engage and clear its name. The tried and true approach of the gun against the temple of the financial system works with Obama: why should it not work with the SEC:
"Bank of America's position is that rather than puts its assertions of innocence to the test, it decided to spend $33 million of shareholders' money to settle the case "so that Bank of America would not face the unnecessary distraction of a protracted dispute with one of its principal regulators at a time when the financial industry continues to face difficult challenges stemming from uncertain and turbulent conditions."
But didn't Ken Lewis recently repeatedly state that everything is peachy again? Funny how the same world can be both black and white at the same time, depending on what suits the cause.
Luckily, the "end of the world approach" does not work with Rakoff, who concludes as follows:
"Whatever this chain of vague expressions may mean, if it is intended to suggest that Bank of America settled this case to curry favor with the SEC or to avoid retaliation by the SEC, the Court needs to know the specifics."
Zero Hedge fully hopes that the entire responsible executive committee of Bank of America face criminal prosecution for this SEC co-opted attempt to obfuscate and limit legal recourse in a case that is as simple as night and day. And, of course, that Judge Rakoff continues his pursuit of the SEC's complacency in seeking anything even vaguely resembling an equitable disposition for BAC's shareholders/taxpayers, with the end result being that the SEC should either dramatically change its entire modus operandi, be disbanded, or that the executives at the SEC responsible for this fiasco voluntarily step down before the wave of public anger turns against this blatant example of all that is wrong with the crony SEC-Wall Street machine.