Last week, when pressured by federal Judge Jed Rakoff to explain why neither Bank of America CEO Ken Lewis nor Merrill Lynch CEO John Thain was held accountable or even named as a defendant, an SEC lawyer responded that the two top executives “relied on the lawyers’ advice and didn’t know what was in the disclosure schedule.”
The exchange between Judge Rakoff and the SEC attorney brings to light a very important question. If we except the simple fact that Wall Street CEO’s are paid massive salaries to make tough decisions for their company, why are they allowed to skirt responsibility when those decisions are found to be wrong, or in this case potentially illegal, regardless of who advised them to make the decision? As President Truman famously said, “The buck stops here”.
“Was it some sort of ghost or a human being?” asked Judge Rakoff.
The venerable judge expects clarity on this issue and so he ordered all parties to submit an explanation, due at the end of August.
Judge Rakoff very well might have set events into motion that will significantly impact Wall Street and the SEC. When the dust settles, it’s a real possibility that at least one Wall Street CEO will formerly admit he lied to shareholders and in doing so, reveal that the SEC’s settlement did not square with the violation. As a result, Wall Street CEO’s will be held to a higher standard and will no longer feel impenetrable behind a shield of lawyers and accountants. Secondly, the SEC’s penalties will finally become commensurate with what is alleged.
When a judge says that it’s his or her duty to ensure settlement agreements are in the public’s best interest, this is exactly what it means.