Why the SEC / BofA Ruling Is So Important

Three loud cheers for Judge Jed Rakoff, the judge that Tuesday rejected the $33 million settlement between the SEC and Bank of America (BAC), insisting that BoA “materially lied” to shareholders.

As Rakoff put it, the settlement

proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.

This penalty, of course, only represents a fraction of the multibillion dollar alleged fraud that occurred.

As some readers of this blog might remember, it was Judge Rakoff who rejected the SEC’s $500 million settlement with Worldcom back in 2003. He eventually approved a $750 million fine but ruled that it be paid out to shareholders. Any new settlement between the SEC and BoA would likely be similarly structured with the proceeds going to the victims.

Judge Rakoff also describes the relationship between the SEC and BoA as “cynical,” explaining that Bank of America gets off with little more than a wrist slap while the SEC can pat itself on the back for its enforcement. This is easily the most important way the SEC can reform itself. If the SEC were tougher on the enforcement front and actually litigated cases, they would send a strong message to Wall Street.

This chapter in Bank of America’s long history is far from over. As reported today in the AP, New York Attorney General Andrew Cuomo is preparing charges against “several high-level executives at Bank of America,” which likely will include Ken Lewis. It is rumored that Mr. Cuomo will file civil charges against BoA for failing to disclose the Merrill Lynch bonuses to shareholders.

While the struggle for transparency continues, this was certainly a good day.

Comments

[Nettligent:]

BoA bought SEC for a cool $33 million. Never trust SEC again: snake guards hen house.

Sep 16 04:58 AM

[Nettligent:]

God Saves America...Kudos to Judge Jed RakoffNew York Attorney General Andrew Cuomo.
Thanks to President George W. Bush. We should let Bernie Madoff to become SEC chairman. Americans will never see all the billion dollars frauds which linked directly to SEC.
I do not have problems with mistakes. For the record, these are preventable and frauds.
Investigate and prosecute these crooks. Send them to Hell.

Sep 16 05:02 AM

[Quarter Twain:]

If a huge fine of the corporation for materially lying to shareholders is a "good thing", please explain how. Without a doubt they "Materially lied", but I am a shareholder who was lied TO and now you want to fine ME? If they fine the bank, that's exactly what they're doing to me, the duped owner. Instead, some INDIVIDUAL OFFICERS should be fined and, in this case, some individuals should go to jail, starting with the head crook at BAC and perhaps including a couple in government as well.

Sep 16 06:41 AM

[apppro:]

This story is only important to the media, bloggers, and now judges who need something/anything to create more hysteria and hate.
Enough already with this Merrill/ BoA issue. Everyone got creamed this past year at the shorts gain, and no one is complaining about them.
Merrill was a great buy, let them pay the damn fine, and let's MOVE ON to more important issues.

Sep 16 06:45 AM

[Graham and ...:]

Dear Mr. Zamansky:

I published a similar piece yesterday.

seekingalpha.com/insta...

But yours says it better than mine.

Sep 16 09:12 AM

[Angry Banker:]

I totally agree with Quarter Twain. A fine against the corporation punishes the shareholders who were already penalized due to the management lying to them. The responsible party should be the executives who did the lying and they should be held personally responsible for any damages incurred, not the shareholders. And while the judge is at it, he should call Paulson, Bernanke and the rest of the government gang in as well and insist fines be levied against them too to forcing the BAC management to lie to shareholders.

Sep 16 10:25 AM

[Econ 101:]

There should be a criminal prosecution using the RICO statutes!

www.rollingstone.com/p...

Sep 16 12:49 PM

[BullnBear:]

I get the feeling that about 8 or 10 people will be sitting in an office within a skyscraper somewhere, (N.Y. maybe), looking out a window and talking about all of us stupid people and of course one VIP will be screaming something like “They can’t handle the truth” and then of course we will never know what really happened or who did what.

Sep 16 11:14 PM

[THofler:]

To me, a BAC shareholder, the most important issue are the undisclosed Merrill losses which are mostly responsible for the second round of BAC stock dilution.

While I obviously don't know with certainty that John Thain was guilty of anything, I do think he should be prosecuted under SarbOx. It seems likely that he misrepresented the health of Merrill. The other obvious option is that both he and Lewis knew the full extent of the damage. But if so, why did Lewis pay so much?

If the massive financial crisis that we've been through hasn't resulted in a single prosecuted case under SarbOx, then the law should be scrapped. It is likely responsible for the loss of $0.5T of lost economic activity due to small cap IPOs that didn't happen and venture capital not loaned.

Sep 17 12:18 AM