Judge Denies $33 Million Settlement between SEC and BofA

In what is a surprise move to me, Federal District Judge Jed S. Rakoff set a trial date of February 1 after denying a proposed settlement between the SEC and Bank of America (NYSE:BAC) of $33 million, in which both parties agreed to. I never thought this would go to trial because of the potential revelations of the overall terms connected to Bank of America receiving a taxpayer bailout, which have largely been kept hidden from the public. This trial could bring all of that out in a way that the Federal Reserve and SEC has no desire to have done.

The trial focuses on allegations the SEC made concerning Bank of America that they withheld important information from shareholders about an agreement to pay out bonuses to executives from Merrill Lynch of $5.8 billion, which may have killed the deal they were somewhat reluctantly making to acquire the company.

The judge had been somewhat antagonistic to the overall deal, not just in the response of Bank of America executives who asserted they didn’t withhold any information as stated, and the SEC, which seemingly had in the view of the judge, been lax in the case of pursuing matters more aggressively and in accordance with their own rules. The judge cited current SEC policy which should have been used to punich executives who the SEC believed had deceived shareholders.

I think another concern the judge had was that he was suspicious of both parties behaving so well and being in harmony concerning the overall issue. It seems he believes he smelled something wrong on both sides, and so evidently ordered a trial to bring it all out into the open. This could be a really good thing, and give us probably the first real look into the dealings of all the parties involved; including the Federal Reserve.

As far as the $33 million, the judge wrote, “It does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the bank’s alleged misconduct now pay the penalty for that misconduct.”

One odd thing in all of this is the SEC said from the beginning that they couldn’t find any evidence of wrongdoing on the part of individual executives at Bank of America, which again, the judge seemed to seem very odd then, considering they still pursued the settlement with with Bank of America.

The fact that this wasn’t aggressively pursued by the SEC and that there’s a strong possibility things that would have rather have been kept quiet are now very likely to be brought into the open is a good thing for all of us who are concerned about the outrageous bailouts and resultant behavior of all parties involved; particularly the proof that the Federal Reserve and the Treasury both new about the bonuses being paid out to Merrill Lynch executives before they approved the $20 billion in additional taxpayer-financed bailouts.