WASHINGTON – Bank of America Corp. now faces a trial with the Securities and Exchange Commission over billions in bonuses paid at Merrill Lynch, after a judge threw out the bank’s $33 million settlement and rebuked the agency for not pursuing charges against executives.
The news comes as Bank of America executive Anne Finucane prepares to meet Tuesday with Rep. Edolphus Towns, D-N.Y., about BofA’s takeover of the troubled investment bank. BofA missed a Monday deadline to turn over details of the hastily arranged acquisition to a congressional committee.
The SEC had accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses to its employees in 2008 even though the investment bank lost $27.6 billion that year.
Bank of America had agreed to pay $33 million to settle the charges without admitting or denying wrongdoing, saying it didn’t violate disclosure rules but wanted to avoid litigation with the SEC at a time of market uncertainty.
But U.S. District Judge Jed Rakoff last week called the proposed settlement a breach of “justice and morality,” and ordered a trial.
He questioned why individual executives at Bank of America weren’t charged, and said the settlement unfairly penalized shareholders.
“The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth,” Rakoff wrote in his ruling.
Both the SEC and BofA have defended the earlier settlement proposal as appropriate. The bank has said it didn’t violate disclosure rules but wanted to avoid litigation at a time of market uncertainty. The government has argued that the bank benefited from the promise of protection.