Bank of America, SEC Seek Approval of Settlement
Tuesday, August 25, 2009
Bank of America sought to win a federal judge's approval for its $33 million settlement with the Securities and Exchange Commission, telling the court that it decided to pay the penalty to avoid the hassle of defending itself against charges that it misled investors.
In a court filing, Bank of America lawyers wrote they had "significant defenses" against the SEC's claims that the bank failed to disclose to shareholders plans to pay billions of dollars in bonuses to employees of Merrill Lynch, the troubled Wall Street firm it bought amid the financial crisis.
But Bank of America said it decided to settle so that it wouldn't "face the unnecessary distraction of a protracted dispute with one of its principal regulators."
The SEC also filed papers on Monday urging Judge Jed S. Rakoff of the Southern District of New York to approve the settlement. Rakoff has expressed skepticism about the case, demanding to know why the SEC chose to file a case against the company and not the executives who made the decisions about disclosures of bonuses. He also wants to know how the SEC settled on the size of the penalty.
Rakoff's refusal to endorse the settlement has been a setback for the SEC in its attempt to bring high-profile cases linked to the financial crisis. It also has put the nation's top Wall Street cop in an awkward spot: on the same side of the bank that it is taking action against. Without the judge's consent, the settlement is not final. It's not clear when Rakoff will rule.
In its court filings, the SEC shed little new light on how to pursue the case against Bank of America but repeated arguments it made to the judge at a hearing two weeks ago. The SEC said the penalty amount is in the range of what it obtained in a similar case against Wachovia in 2004, when that bank paid a $37 million fine.
The SEC rejected the idea that a lengthy court proceeding, in which all evidence becomes part of the public record, would be a wise use of resources. "It is well established that public policy strongly favors the settlement of actions as a cost-efficient means of resolving disputes and conserving judicial resources," the agency wrote.
The SEC said it decided not to file a case against executives from both firms -- including Bank of America chief executive Kenneth D. Lewis -- because it had concluded that the executives acted in good faith based on what they were told by their lawyers.
Still, the SEC maintained that Bank of America violated securities law by failing to disclose to investors plans to pay the bonuses ahead of the shareholder vote in December approving the Merrill acquisition.
Bank of America, meanwhile, said in its filings that it did nothing wrong. Under the proposed settlement, the bank neither admits nor denies wrongdoing.
"It was widely understood from Merrill Lynch's public disclosures that Merrill Lynch intended to pay multi-billions of dollars in year-end incentive compensation," the bank wrote in its court filing.
The bank said it was looking to settle with the SEC to dispatch with a regulatory issue "at a time when the financial industry continues to face difficult challenges stemming from uncertain and turbulent market conditions."
The $3.6 billion in bonuses paid to Merrill Lynch employees has attracted scrutiny from regulators and Congress.
The SEC claimed earlier this month that the November 2008 proxy statement requesting shareholder approval for the deal told investors that the bonuses would not be paid without Bank of America's consent.
In fact, the SEC said, Bank of America had secretly authorized up to $5.8 billion in bonuses to be paid by Merrill Lynch.
Staff researcher Madonna Lebling contributed to this report.