A federal judge refused Monday to approve a settlement agreement between the Securities and Exchange Commission and Bank of America Corp. over the bank's purchase of Merrill Lynch & Co.
Jed S. Rakoff, a U.S. District Court judge in New York, said that company executives "effectively lied to their shareholders" regarding an undisclosed agreement to pay Merrill Lynch executives $3.6 billion in bonuses.
The deal, which came at the height of last year's financial crisis, attracted criticism from the beginning for a lack of transparency and inappropriate government involvement.
Numerous government agencies at the federal and state level are examining the deal. The settlement with the SEC focuses on Bank of America's failure to tell shareholders, who had to approve the deal, that it had agreed to assume Merrill Lynch's obligations to its executives.
Last week, Rakoff placed a temporary hold on the settlement agreement, in which Bank of America admitted no wrongdoing but agreed to pay $33 million to the SEC to settle the matter.
At the time, the judge's major concern was that taxpayer money would be used to fund the settlement. Both companies received a total of $45 billion in bailout funding under the Troubled Asset Relief Program.
In comments from the bench Monday, however, Rakoff questioned the propriety of the settlement itself and called the relationship between the $33 million settlement and the size of the overall merger agreement "strangely askew."
He also questioned whether top Bank of America executives, who were ultimately responsible for not informing shareholders about the secret agreement regarding the Merrill Lynch bonuses, were being held to account by the government.
"Was there some sort of ghost that performed those actions?" Rakoff said, according to the New York Times.
Lawyers from the SEC defended the agreement, saying that they made a decision not to pursue individuals in the case. They also said that the $33 million settlement was modeled on one reached with Wachovia in 2001. Bank of America lawyers appeared to be assisting those from the SEC form their arguments, the paper reported.
The judge ordered all parties to submit more information to the court within two weeks.
Jed S. Rakoff, a U.S. District Court judge in New York, said that company executives "effectively lied to their shareholders" regarding an undisclosed agreement to pay Merrill Lynch executives $3.6 billion in bonuses.
The deal, which came at the height of last year's financial crisis, attracted criticism from the beginning for a lack of transparency and inappropriate government involvement.
Numerous government agencies at the federal and state level are examining the deal. The settlement with the SEC focuses on Bank of America's failure to tell shareholders, who had to approve the deal, that it had agreed to assume Merrill Lynch's obligations to its executives.
Last week, Rakoff placed a temporary hold on the settlement agreement, in which Bank of America admitted no wrongdoing but agreed to pay $33 million to the SEC to settle the matter.
At the time, the judge's major concern was that taxpayer money would be used to fund the settlement. Both companies received a total of $45 billion in bailout funding under the Troubled Asset Relief Program.
In comments from the bench Monday, however, Rakoff questioned the propriety of the settlement itself and called the relationship between the $33 million settlement and the size of the overall merger agreement "strangely askew."
He also questioned whether top Bank of America executives, who were ultimately responsible for not informing shareholders about the secret agreement regarding the Merrill Lynch bonuses, were being held to account by the government.
"Was there some sort of ghost that performed those actions?" Rakoff said, according to the New York Times.
Lawyers from the SEC defended the agreement, saying that they made a decision not to pursue individuals in the case. They also said that the $33 million settlement was modeled on one reached with Wachovia in 2001. Bank of America lawyers appeared to be assisting those from the SEC form their arguments, the paper reported.
The judge ordered all parties to submit more information to the court within two weeks.
published August 11, 2009, 0 Comments
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