Judge Rejects Bank of America / SEC Settlement

In the relationship between U.S bankster-oligarchs and their corrupt regulators, the banksters have been able to count on the regulators to protect them from liability rather than punishing them for their misdeeds. Indeed, even when one of Wall Street's lies or scams draws so much public attention that U.S. “regulators” can't turn a blind-eye toward it, their response is predictable: they levy a small fine, and never require the banksters to acknowledge any wrong-doing.

Sadly, this perversion of justice usually extends to court proceedings as well. Since litigants usually have adversarial relationships, when the two parties come to an agreement on a settlement, judges generally feel they have little choice other than to rubber-stamp the deal.

However, in a decision just announced, a U.S. judge was so nauseated by the stench of corruption emanating jointly from Wall Street and their regulators that he refused to allow a settlement between the SEC and Bank of America (BAC). This case involves a “complaint” which the SEC was pressured into filing after the litany of lies (and fraud?) which surrounded Bank of America's murky take-over of Merrill Lynch.

Regular readers will recall that Bank of America's CEO, Ken “I cannot tell a truth” Lewis, has invented at least three versions of what took place in this take-over (see “Ken Lewis invents new version of take-over”). In one version, Lewis played the role of hero: buying Merrill Lynch even after he discovered the hideous condition of Merrill's balance sheet, in order to save the U.S. financial system. In another version, Lewis played the damsel-in-distress: “That big meanie Hank Paulson forced me to buy Merrill Lynch”. Meanwhile, in a third version of the take-over Lewis cast himself as the lovable “Seargent Schultz” - “I know nothing...nothing!”

Needless to say, in none of these scenarios does Lewis appear to be upholding the “fiduciary duty” toward shareholders, which legally requires him to put their interests above his own. As the contradictions and reek of corruption increased, even the blind/deaf/dumb SEC was forced to take action.

Naturally, this regulator followed the script sent to it by its Wall Street masters: a small fine, and no acknowledgment of wrong-doing – case closed. Well...not quite. Judge Jed Rakoff refused to sign-off on the typical “sweetheart deal” for Wall Street. For once, a previously unknown doctrine in the U.S. called “public interest” has taken precedence over what is normally the guiding “principle”: protecting Wall Street at all costs.

“Despite the public importance of this case, the proposed consent judgment would leave uncertain the truth of the very serious allegations made in this complaint,” wrote Rakoff. Clearly this decision would have been a shocker to both Bank of America and the SEC – who likely were forced to rush to dictionaries to look up the meaning of the word “truth”.

Both parties will now be required to appear before the judge and fill in some of the gaping holes in what was contained in the proposed settlement. Presumably, part of what the judge wants to see is for CEO Lewis to choose which of his three versions of the take-over story he wants to settle on.

Let me simply things for poor, confused Ken. If he chooses “hero”, he has violated his duty to shareholders in the clearest terms. Sacrificing their well-being so he could help “rescue” the U.S. financial system is not an acceptable motivation.

If he chooses to frame himself as a victim, once again he has violated his duty. It doesn't matter if “Bazooka” Paulson threatened to have him removed if he backed out of the deal – since the interests of shareholders must always be put above his own, personal motives.

Lewis' only hope of partial vindication is to fall back on his original role: the innocent dupe who didn't have a clue about the true financial condition of Merrill Lynch, nor the huge bonuses it was stuffing into the pockets of its employees – bonuses ultimately paid for by Bank of America shareholders and U.S. taxpayers.

Even in this scenario, the best outcome Lewis can hope for is to be merely terminated for incompetence. However, if there is a finding of fact that Lewis was so negligent as to have entered into the deal recklessly, then even his total ignorance would not be a shield against personal liability for violation of his fiduciary duty.

Still, given a lack of good options, expect BoA lawyers to present a version of the take-over to Judge Rakoff where Lewis' official position on the deal is “I knew nothing...nothing!”

Disclosure: I hold no position in Bank of America

Comments

[Graham and Dodd Investor]

"Judge rejects settlement" has the quality of "Man bites dog." For the reasons discussed.

2009 Aug 06 02:59 PM

[Bill S. Friend]

Clearly this decision would have been a shocker to both Bank of America and the SEC – who likely were forced to rush to dictionaries to look up the meaning of the word “truth"

The unfotunate part of this is the utter destruction these two institutions have caused the American people. Public lynchings would be more appropriate.

2009 Aug 07 08:42 AM

[Leftfield]

I nominate Judge Rakoff to the Supreme Court.
There are so few in a position of power to influence events towards truth. Decades of rising concentration of wealth have not raised up many who ever serve principle over ill-gotten easy money. Hence, this judge holding up a malodorous, typical traffic fine settlement for at least tens of $billions of taxpayer losses to insist on the truth is, I believe, unprecedented in this historic debacle.
"Public interest" doctrine? First I've heard of it. One of these scandals deserves to take down much of Washington and Wall St. Thanks for actually serving the public interest, Judge Rakoff.

2009 Aug 07 09:02 AM

[hwood007]

I would rather the writer had given more facts, made them the center piece of his article, and had given less of his opinions. The way he presented this article was not the best.

2009 Aug 07 05:35 PM

[pirate]

hwood: people like you are so annoying. sit there behind the veil of your computer while criticizing this man's work. if you don't like it then click off. its an editorial you knucklehead.


On Aug 07 05:35 PM hwood007 wrote:

> I would rather the writer had given more facts, made them the center
> piece of his article, and had given less of his opinions. The way
> he presented this article was not the best.

2009 Aug 09 01:10 PM

[hwood007]

It was not that he gave a bad report, it was the words he used and the manner in which he presented it. So I have no problem with his facts, such as they were, nor yours. He wrote a rude article and used words he need not have used. so did you, name calling is so being a vogelkoph

On Aug 09 01:10 PM pirate wrote:
hwood: people like you are so annoying. sit there behind the veil
of your computer while criticizing this man's work. if you don't
like it then click off. its an editorial you knucklehead.

2009 Aug 10 11:53 AM