CNN Money reported that Bank of America’s negotiated $33 million settlement with the Securities and Exchange Commission has hit a roadblock. U.S. District Court Judge Jed Rakoff said that Bank of America “effectively lied to their shareholders” when the bank said that it would not pay bonuses to acquired Merrill Lynch employees. In fact, it paid $3.6 billion in bonuses, which averages to $91,000 per bonus. As a result, the judge said that the settlement did not fit the amount of the crime, saying, “Is there not something strangely askew in a fine of $33 million? This is a tiny, tiny fraction. Why isn’t this a grossly unfair amount?”
J. Boyd Page of Page Perry in Atlanta observed “Investors should applaud Judge Rakoff’s resolve. It’s high time that corporate fraud be heavily penalized. The $33 million settlement agreed to by Bank of America is a negligible amount for a major institution. It’s merely a cost of doing business. Any penalty for corporate fraud should really hurt. Otherwise it seems like fraud pays.”
Despite the judge’s ruling, both the SEC and the bank argued that the settlement was fair. It appears that the SEC has an incentive to reach a settlement as quickly as possible, which might explain the anemic amount of the fine. The SEC and Bank of America now have until August 24 to make further arguments that the settlement should be accepted. Judge Rakoff is expected to rule by September 9.
In addition to Rakoff’s apprehensions about the magnitude of the fine, he also expressed concern over who actually was responsible for the decision to pay out enormous bonuses in the face of record losses. Rakoff said, “In a case involving such public interest’it seems to me that I need a lot more material before I can reach the conclusion that this settlement meets my approval.” The judge seemed to want to find out which corporate officers had knowledge of the bonuses, and thus which officers lied to shareholders. The SEC had previously argued that the CEOs of Bank of America and Merrill, Ken Lewis and John Thain, respectively, had no knowledge of the bonus payouts.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions.