A District Judge has ordered the Securities and Exchange Commission to explain its investigation, or lack thereof, on Bank of America and whether the bank misled shareholders and omitted information in regard to Merrill Lynch bonuses.
Bank of America had reached a $33 million settlement with the SEC in regard to the bonus probe. However, U.S. District Judge Jed Rakoff in Manhattan said on Tuesday that he is not approving the settlement and wants a more complete statement about the deal from the SEC by September 9.
The settlement stems from action during late 2008 when Bank of America was trying to persuade shareholders to approve a deal to acquire struggling investment bank Merrill Lynch. The two banks releases a joint proxy statement back in November stating that Merrill Lynch agreed to withhold from paying year end bonus before a deal closed. The statement also said Merrill would not proceed with bonus payments without Bank of America approval.
However, according to records, Merrill Lynch ended up paying out $3.6 billion in bonus money just weeks before the deal closed, even though the firm reported a record annual loss. What’s more is the fact Bank of America approved the payout of up to $5.8 billion in bonuses, failing to communicate this decision to shareholders.
Judge Rakoff’s decision and comments were listed in a four page court order. He has taken partial issue with the SEC’s explanation that Bank of America executives who issued the misleading information relied on lawyers’ advice.
“If the responsible officers of the Bank of America, in sworn testimony to the SEC, all stated that ‘they relied entirely on counsel,’ this would seem to be either a flat waiver of privilege or, if privilege is maintained, then entitled to no weight whatsoever, since the statement cannot be tested,” said Rakoff in the order.
Rakoff also queried whether the lawyers who made the “decisions that resulted in a false proxy statement” should be “held legally responsible.”
The Judge is also pressing the SEC on why it did not seek a waiver from Bank of America on its attorney client privilege in order to investigate the bank’s explanation further. However, Rakoff has asked Bank of America to provide him with more information on its attorney client privileges.