This story becomes stranger and stranger. FT.com reports the proposed settlement between the SEC and Bank of America (BAC) is being rejected by federal judge Jed Rakoff.
“I cannot ignore issues of responsibility,” said Jed Rakoff, a federal judge in New York, before ordering the SEC and BofA to submit detailed statements about the case by August 24.
The judge’s decision is embarrassing to the SEC, which was forced to defend a $33m settlement that Mr Rakoff suggested was too small if the underlying conduct was actually as described.
These types of plea deals are usually pro forma.
The case involves a proxy statement sent to investors last November describing BofA’s proposed takeover of Merrill Lynch.
According to the proxy statement, bonuses would not be paid to senior executives at Merrill without the consent of BofA.
The SEC pointed out that BofA had already agreed to allow Merrill to pay out as much as $5.8bn in bonuses as part of the original merger agreement negotiated in September and, therefore, the proxy statement was misleading.
Is this judge begging tipping off the press to dig deeper into this story? Does the judge know something about this case that is so out-of-bounds that he refuses to sign off?
Under the terms of the settlement with the SEC, BofA neither admitted nor denied the allegations.
Pressed to identify who negotiated those bonus payments, SEC lawyers told the court that Greg Curl, BofA’s chief risk officer, negotiated the transaction with Greg Fleming, former president of investment banking at Merrill Lynch.
The SEC told the court that its lawyers had also discussed the matter with Ken Lewis, BofA chief executive, and John Thain, former chief executive of Merrill Lynch.
When Mr Rakoff asked if either of those men should be held responsible for the allegedly misleading statements to investors, BofA counsel Lewis Liman said it was the law firms representing both companies that hashed out final details of the proxy statement.
Mr Rakoff said the issue troubled him and that the thrust of the Sarbanes Oxley Act was to force chief executives to take responsibility for the statements made to investors and not let them hide behind “amorphous” layers of lawyers.
“I’m concerned that we have not yet ferreted out all that this court needs to know,” Mr Rakoff said.
“No court can make an informed judgment without knowing the truth. That’s the warp and woof of the legal process.”
August 24th should be an interesting day in court.