Bank of America Corp. won court approval of a $150 million settlement with the Securities and Exchange Commission over alleged misstatements about its purchase of Merrill Lynch & Co.
U.S. District Judge Jed S. Rakoff in New York said Monday that he "reluctantly" approved the settlement of two suits in which the agency said Bank of America misled investors after announcing it would acquire Merrill Lynch.
He criticized the accord as "half-baked justice at best" and "inadequate and misguided," adding that the law compels him to defer to regulators seeking approval.
"As both parties never hesitate to remind the court, the law requires the court to give substantial deference to the SEC as the regulatory body having primary responsibility for policing the securities markets, especially with respect to matters of transparency," he wrote in a 16-page ruling.
A trial was scheduled for March 1 had Rakoff rejected the accord, as he did an earlier $33 million settlement.
In its Aug. 3 lawsuit, the SEC alleged that Bank of America misled investors about Merrill's bonus payments before the 2009 acquisition. The bank said in a November 2008 proxy statement that Merrill Lynch agreed not to pay yearend bonuses when the bank had already agreed to Merrill's plan to pay as much as $5.8 billion, the suit said. In January, the SEC said in another complaint that the bank also failed to disclose Merrill Lynch's expected losses.
Rakoff issued Monday's ruling after lawyers for the two sides responded to eight queries he posed. The settlement requires the bank to take steps over the next three years to strengthen corporate governance.
Among the steps are hiring an independent auditor to assess the bank's accounting controls and an independent lawyer to report on the adequacy of its disclosures. The parties agreed to Rakoff's suggestion that he have final say on the selections. The SEC will also have a voice.
Rakoff said Monday that he would approve the accord "provided that, by no later than this Thursday," the parties give him a new settlement agreement with the revision.
The $150 million settlement was announced Feb. 4, the same day New York Attorney General Andrew M. Cuomo sued Kenneth D. Lewis and Joseph L. Price, B of A's former chief executive and financial officers. Both denied wrongdoing.
Bank of America said it was pleased with Monday's decision. "The revised settlement will include conditions vetted in a court hearing and agreed to in letters," the bank said in a statement. An SEC spokesman did not have an immediate comment.
Rakoff criticized what he called the "very modest punitive, compensatory, and remedial measures" in the accord.
The $150 million, to be distributed only to Bank of America shareholders harmed by the nondisclosures, or "legacy shareholders," is an improvement on the prior $33 million while still "paltry," the judge said.
"An even more fundamental problem, however, is that a fine assessed against the bank, taken by itself, penalizes the shareholders for what was, in effect if not in intent, a fraud by management on the shareholders," he wrote, adding that this was a key reason he rejected the earlier agreement.
