Judge promises to rule on SEC, BofA settlement

U.S. District Judge Jed Rakoff said he will decide only after giving lawyers on both sides a written list of questions he has and hearing their responses.

Rakoff last year rejected a US$33 million settlement stemming from the early 2009 acquisition, calling it a breach of “justice and morality” that was “done at the expense, not only of the shareholders, but also of the truth.”

He made clear that the new pact will require some changes, including the possibility of leaving the court some ability to oversee important issues related to the company such as compensation.

The SEC had accused Bank of America of failing to disclose to shareholders that it had authorized Merrill to pay up to US$5.8 billion in bonuses to its employees in 2008 even though the investment bank lost US$27.6 billion that year.

In reviewing the new settlement, Rakoff said he did not think it made sense to leave no oversight of the company in choosing its compensation consultant, especially given the “incredibly bloated compensation of too many executives in too many American companies.”

He said he will rule by Feb. 19 whether to accept the deal announced last week. If he rules against it, a trial in the civil case brought by the SEC against Bank of America is scheduled to start March 1.

SEC spokesman John Nester in Washington said, “We will respond to the court's questions as requested.”

Rakoff questioned whether the deal requiring a company to pay its shareholders was, in essence, a payment by shareholders to shareholders.

SEC lawyer George S. Canellos said a penalty expense for a large corporation does not necessarily come from shareholders because a company can trim money from other parts of the business such as bonus and salaries.

At one point, Rakoff questioned why the amount to be paid shareholders could not be US$300 million or US$600 million. Canellos said the amount the parties settled on was considered as a penalty for the company rather than a compensation scheme for shareholders. He also noted there had been a high turnover in shareholders since the acquisition.

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