Bank of America / SEC: Rakoff Throws Down the Gauntlet

Judge Rakoff has rejected the settlement deal between the SEC and Bank of America (BAC). He clearly wasn’t happy with it to begin with, and subsequent briefs from the two parties did nothing to allay his concerns. At the end of the day, he hated the idea that B of A shareholders, on whose behalf the SEC actually brought the case, would end up paying the fine for executives’ wrongdoing.

So what’s the next step? According to the Reuters story, “Rakoff directed the parties to prepare for a possible trial that would begin no later than February 1, 2010.”

That doesn’t mean there will be a trial. The parties could come back with a settlement more to Rakoff’s liking.

But presumably that would have to involve naming names. Who were the executives responsible for misleading shareholders? B of A has refused to answer that question and the SEC seems to think it doesn’t have the leverage to force it out of them.

I’m happy to see this development. I’m on-record saying the SEC should pick more fights. The truth of the matter is that we need more accountability at the top. The point behind Sarbanes-Oxley, for instance, was that executives would take more responsibility for their misdeeds, in this case Ken Lewis and John Thain.

Too often, “The Corporation” gets the blame and pays the fine. But that isn’t justice, nor does it deter bad behavior.

(Here’s the PDF of Rakoff’s full order)

Comments

[Leftfield:]

"BAC has refused to answer that question and the SEC doesn't think it has the leverage to force it out of them." Washington has given $trillions to Wall St. and accounting-rule gifts, and can't seem to get any reform. Imagine how pitiful and powerless our government would look if they couldn't keep throwing money and gifts at Wall St.

Sep 14 02:21 PM

[Big Jack58:]

Will this judge look at who in the government hosed BAC investors when they took a large U.S. bank that was managing the financial crisis in relatively good order, then encouraged them to buy CW and later ML (as well as forcing them through that ML deal when it was obvious the company management wanted to use the MAC to get a cheaper deal after seeing material losses)? I'm really looking for government lackey names here, not departments. It would have been nice for this judge to have stepped in and actually done something about Bernanke and Paulson waffling on who really threatened these free-market people. Ultimately, Paulson fell on the sword now that he can't actually lose the job he already left. But shouldn't he be charged with a crime? Those investors lost a bunch of money because of his (and most likely Bernanke's) heavy handed tactics. Let's call it like it is: the financial crisis avoided becoming a financial disaster thanks to the blood spilled by the BAC board, management, staff and investors ... there were no heros in our government because the only sweat they spilled was done via threats with the sacrifice coming in the private sector.

Sep 14 02:39 PM

[theobannion:]

"Throws down the gauntlet"?

Clearly, the SEC was in collusion w/ BAC to begin with, or this phoney settlement would never have come to pass. And who now gets to prosecute BAC, should the case go to trial? The SEC!

I would say the judge threw down the gauntlet had he demanded a special prosecutor to prosecute both BAC and the SEC. But I doubt that this could happen under our present constitution. Reconstitute the SEC? THAT would be nice. But Obama's a go-along-to-get-along kinda guy. And he and the SEC all know whom they belong to. Who's going to reconstitute Obama?

SOB.

Sep 14 03:46 PM

[SickandTired2:]

What's 33 mil when your Uncle has given you 45 bil. Make Ken Lewis pay the fine from his own money. This all stinks of how cozy the SEC is with big business. What, Lewis and the SEC forgot to shop around for a friendly judge? Finally, someone is standing up for the taxpayer and the shareholder.

Sep 14 04:14 PM

[LT:]

You are exactly right Big Jack, and to take it one step further, include John Thain. Maybe even check and see how many times he contacted Goldman Sachs before and during this.

It is a shame that Ken Lewis and BAC is taking the brunt of this scandal. Washington/Wall St. and Thain buried the losses just deep enough that they knew BAC could not find "the total extent of massive losses" before the shareholders vote. Merrill was another AIG and Paulson, Thain & Goldman knew it. (Geithner was also in the loop)

Washington needed this to happen...now they need a scapegoat & Ken Lewis is it.

This is so pathetic, Ken Lewis had managed the crisis as well as Jamie Dimon & JPM, but he made one (and only one) mistake of "trusting" Paulson and Thain. Now he will suffer the brunt of 20 out of 28 years of Republican rule and the greatest cover-up of all time. BAC is most likely as sound (if not sounder) than any other bank today. They could probably even pay the TARP back....but the gov't will not let them. They have their scapegoat in the trap and refuse to let it loose. Anytime the heat turns up on the real culprits,....they just post another article on the "bad banks", and especially BAC and Ken Lewis.
When Ken Lewis threatened to expose the truth...he signed his own death warrant. Sad.


On Sep 14 02:39 PM Big Jack58 wrote:

> Will this judge look at who in the government hosed BAC investors
> when they took a large U.S. bank that was managing the financial
> crisis in relatively good order, then encouraged them to buy CW and
> later ML (as well as forcing them through that ML deal when it was
> obvious the company management wanted to use the MAC to get a cheaper
> deal after seeing material losses)? I'm really looking for government
> lackey names here, not departments. It would have been nice for this
> judge to have stepped in and actually done something about Bernanke
> and Paulson waffling on who really threatened these free-market people.
> Ultimately, Paulson fell on the sword now that he can't actually
> lose the job he already left. But shouldn't he be charged with a
> crime? Those investors lost a bunch of money because of his (and
> most likely Bernanke's) heavy handed tactics. Let's call it like
> it is: the financial crisis avoided becoming a financial disaster
> thanks to the blood spilled by the BAC board, management, staff and
> investors ... there were no heros in our government because the only
> sweat they spilled was done via threats with the sacrifice coming
> in the private sector.

Sep 15 03:53 AM

[Turbo_tee:]

How about giving the fine money to BAC investors after all we are the ones who took it in the shorts.

Sep 15 04:18 PM

[Turbo_tee:]

How about giving the fine money to the BAC investors after all we are the ones who took it in the shorts

Sep 15 04:20 PM

[Gino Verza:]

I never understood the picture.

BAC misleads shareholders and the SEC is complicit in imposing a "negotiated penalty" to the detriment of the shareholders, the innocent bystanders who are required to pay again. Meanwhile the responsible perpetrators go uncovered and unpunished and their board of directors remain in silent agreement. Is this the true picture of governance and accountability?

Finally a voice of reason which calls a sham for what it really is.

All this suggests the tip of an iceberg --the SEC, management, and the board of directors, mutually supporting their own agendas at the detriment of the shareholders they are supposed to serve.

Sep 15 10:17 PM