Judge OKs Bank of America settlement

John O'Brien Feb. 22, 2010, 1:10pm


NEW YORK (Legal Newsline) - A federal judge has approved a $150 million settlement between the Securities and Exchange Commission and Bank of America, resolving allegations the company misled shareholders during its acquisition of Merrill Lynch.

U.S. District Judge Jed Rakoff signed off on the settlement Monday, adding that allegations made by the SEC differ greatly from those made recently by New York Attorney General Andrew Cuomo. Notably, Rakoff says substantial evidence supports Bank of America's claim that it did not intentionally mislead investors, as Cuomo suggests.

Cuomo alleges the company fired general counsel Timothy Mayopoulos because he said the company should disclose Merrill Lynch's forecasted fourth-quarter losses in 2008 to shareholders.

The SEC submitted a statement of facts last week that said Mayopoulos was fired so the company could offer his position to Brian Moynihan, now the company's CEO.

"It is important to emphasize, with respect not just to Mayopoulos's termination but with respect to all the events that the Attorney General interprets so very differently from the SEC, that the Court is not here making any determination as to which of the two competing versions of the events is the correct one (an issue not before the Court)," Rakoff said.

"Rather, the Court, after a careful review of voluminous materials, determines only that the SEC's conclusion that the Bank and its officers acted negligently, rather than intentionally, in causing the nondisclosures that are the predicates to the settlement here proffered, is a reasonable conclusion, supported by substantial evidence, that a reasonable regulator could draw."

Bank of America is alleged to have withheld Merrill Lynch's projected heavy losses in the fourth quarter of 2008 before the vote. It also withheld Merrill Lynch's plans to spend up to $5.8 billion in executive bonuses after the merger, it is alleged.

North Carolina Attorney General Roy Cooper is also taking part in the SEC's settlement, earning $1 million from the Charlotte-based bank.

Rakoff wrote that Cuomo has "reached a more sinister interpretation" of the alleged events.

Cuomo charged former CEO Kenneth Lewis and former CFO Joseph Price with fraud in his suit.

Cuomo also alleges Bank of America misled the federal government to receive Troubled Asset Relief Program funds.

Cuomo has drawn criticism from some who wonder what remedy his lawsuit can seek.

"The question is what public interest this lawsuit really serves. Even if Bank of America did ram a bad deal past its shareholders, the SEC is dealing with the matter, supervised by a federal judge, Jed S. Rakoff, who seems determined to hold the firm fully accountable," the Washington Post wrote in an editorial.

"Meanwhile, Mr. Lewis and Mr. Price have lost their jobs, Bank of America has repaid its federal bailout with interest, and Merrill Lynch is back in the black."

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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