Bank of America (NYSE: BAC) has finally reached a settlement with the Securities and Exchange Commission on the largest legal case that has come out of the financial crisis, agreeing to make several internal reforms and to distribute up to $150 million to some of its shareholders.
Federal District Judge Jed Rakoff, who rejected a settlement of the case for $33 million last year, said that the new settlement was “misguided” and “inadequate”, and said that despite the new higher dollar amount was still “paltry.” Rakoff approved the deal, but said that he had only do so because of judicial restraint.
In his opinion, Rakoff wrote that “While better than nothing, this is half-baked justice at best.” Although judges will generally approve settlements reached by the SEC, Rakoff called the initial settlement a “contrivance designed to provide the SEC with the facade of enforcement.”
Unfortunately for Bank of America, the settlement with the SEC does not end the company’s legal troubles over the merger with Merrill Lynch. New York AG Andrew Cuomo filed his own suit against Bank of America, including two executives, over the Merrill Lynch purchase.
Rakoff commented in his opinion that Cuomo’s office “reached a far more sinister interpretation of what happened than the SEC.”
One of the major differences between the SEC’s and Cuomo’s view of the events surrounding the purchase of Merrill Lynch is the firing of Bank of America’s general counsel during the negotiations to buy Merrill Lynch. Cuomo’s suit argues that the bank fired Timothy Mayopolous because he wanted to disclose the size of the potential losses to shareholders from Merrill Lynch when the other bank executives did not.
The $150 million that will be paid by Bank of America will be to shareholders that owned company stock at the time of the Merrill Lynch purchase. The funds will amount to, as Rakoff said, “no more than a few pennies per share.”