SEC / BofA Judge May Change the Face of Corporate America

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”.

As Judge Rakoff puts it, Bank of America (BAC) and Merrill Lynch (MER) “effectively lied to shareholders,” yet neither the SEC or company representatives can tell us who is responsible.

“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.

Comments

[nauart:]

Finally ther is a judge (Judge Rakoff) that understands that the owners of a corporation are the stock holders and that the CEO's have a responsibility to be truthful regarding the CEO's decisions that affect the value of the corporation. The next step must also \be made to hold members of the Boards of Directors as coconspirators. The boards are responsible for representing the stock holders not pading the pockets of their cood friends in the executive offices. This brings up the real conflict of interest presentd by having the CEO and the COO being the same person.
One argument presented is that the officers and board members have large stock holdings and therefore have a vested interest in protecting their holdings. This is BS because they voted themselves their holdings, they didn't even have to show a measureable benefit for the ordinary (small) stock holders to get their bonuses.

Aug 20 12:15 PM

[Graham and ...:]

Judge Rakoff for the next available Supreme Court Justice position.

Aug 20 12:46 PM

[John Herron:]

Of course, the SEC wants to let BOFA off light. When Paulson and Big Ben put pressure on BOFA they, they kmew that if Merrill's losses were made public, the merger would have been voted down. All of this info would come out in a public trial, in effect blamming the government for the withholding of information. (By John Herron husband of Hallie)

Aug 20 01:18 PM