Judge Rejects Settlement Over Merrill Bonuses

[groovedaddy]

As President Obama traveled to Wall Street on Monday and chided bankers for their recklessness, across town a federal judge issued a far sharper rebuke, not just for some of the financiers but for their regulators in Washington as well.

Giving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff issued a scathing ruling on one of the watershed moments of the financial crisis: the star-crossed takeover of Merrill Lynch by the now-struggling Bank of America.

Judge Rakoff refused to approve a $33 million deal that would have settled a lawsuit filed by the Securities and Exchange Commission against the Bank of America. The lawsuit alleged that the bank failed to adequately disclose the bonuses that were paid by Merrill before the merger, which was completed in January at regulators’ behest as Merrill foundered.

He accused the S.E.C. of failing in its role as Wall Street’s top cop by going too easy on one of the biggest banks it regulates. And he accused executives of the Bank of America of failing to take responsibility for actions that blindsided its shareholders and the taxpayers who bailed out the bank at the height of the crisis.

http://www.nytimes.com/2009/09/15/business/15bank.html?_r=1&th&emc=th

[justinaforjustice]

1. Thank You, Judge Rakoff, for Stopping the Fraud.

The SEC tried to ram through a settlement in the Bank of America - Merrill Lynch Executive Bonus case that would make the shareholders who lost money in the fraud pay big bucks to the SEC for the crime, while the corporate executives who executed the fraud by failing to disclose the big bonuses are absolved of liability for their crime. The SEC is supposed to police the securities industry, not actively cover-up or increase security crimes, as they attempted with this settlement.

Judge Rakoff refused to allow the SEC and Merrill-Lynch to settle the complaints on these terms and set the case down for trial. Thank goodness for an honest judge who is protecting the victims not the perpetrators.

The only way to stop the corruption in the securities industry is for the CEO and other decision-makers to be personally liable for their acts. When only the corporation itself is fined, the companies merely raise their prices to consumers to make up for the fines, so there is no personal incentive to honesty on the part of the CEOs.