Saying that $33 million is a "trivial penalty for a false statement that materially infected a multi-billion dollar merger," a federal judge has rejected a proposed settlement between the Securities and Exchange Commission and Bank of America over $3.6 billion in bonuses paid by Merrill Lynch just before it was absorbed by BoA last year.
The Wall Street Journal writes that Judge Jed Rakoff essentially found that:
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 misconduct," 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.
As Reuters notes, "Bank of America had agreed last month to pay $33 million to settle SEC charges it misled investors about its authorizing the payment of $3.6 billion of bonuses to Merrill employees, even though that company lost $27.6 billion last year."
Update at 1:18 p.m. ET: The Journal has posted the judge's ruling here.
At one point, the judge writes that:
Since the fine is imposed, not on the individuals putatively responsible, but on the shareholders, it is worse than pointless: it further victimizes the victims.
Oscar Wilde once famously said that a cynic is someone "who knows the price of everything and the value of nothing." ... The proposed Consent Judgment in this case 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.
Update at 3:08 p.m. ET: The Associated Press, following up earlier reporting by the Journal, says that New York Attorney General Andrew Cuomo "is preparing charges against several high-ranking Bank of America executives over the bank's alleged failure to disclose details about its acquisition of Merrill Lynch, according to a person familiar with the investigation."