NEW YORK — A federal judge reluctantly approved a $150 million settlement Monday between Bank of America Corp. and the Securities & Exchange Commission over the bank's disclosures before its acquisition of Merrill Lynch & Co. last year.
In an order Monday, District Judge Jed S. Rakoff in Manhattan approved the pact but called the revised settlement "far from ideal." The judge rejected a $33 million settlement in September.
The agreement resolves two separate lawsuits by the SEC over the Charlotte, N.C., bank's disclosures before the $50 billion merger closed on Jan. 1, 2009. The first of the SEC's lawsuits was set for trial on March 1.
"So should the court approve the proposed settlement as being fair, reasonable, adequate and in the public interest?," the judge said. "If the court were deciding that question sole on the merits - de novo, as the lawyers say - the court would reject the settlement as inadequate and misguided. But as both parties never hesitate to remind the court, the law requires the court to give substantial deference to the SEC as a regulatory body having primary responsibility for policing the securities markets, especially with respect to matter of transparency."
In his order, the judge instructed the parties to include a provision in the revised settlement that the $150 million be distributed to shareholders harmed by the alleged nondisclosures - namely legacy Bank of America shareholders and not to Merrill Lynch shareholders who now own Bank of America stock or bank officers or directors who had access to the information.
The judge also asked the parties to include several minor revisions to the pact that the parties had previously agreed to, including giving the SEC a say in the hiring of an independent auditor to assess over the next three years whether the bank's accounting controls and procedures are adequate.
The revised pact must be given to the judge by Thursday.
"We're very pleased that the settlement has been approved," said Robert Stickler, a Bank of America spokesman.
Before approving the settlement, the judge asked to review portions of depositions taken by New York Attorney General Andrew Cuomo in a separate probe into the bank's disclosures, including testimony by Timothy Mayopoulos, Bank of America's former general counsel.
Rakoff had questioned why the SEC didn't draw the same inference as Cuomo that Mayopoulos was terminated in December 2008 because he wanted to disclose widening losses at Merrill Lynch before the deal closed. Cuomo has separately filed a separate suit in state court in Manhattan.
The SEC, citing Bank of America's former Chief Executive Kenneth Lewis, has said that Mayopoulos was terminated in order to create a position for Brian Moynihan, who was preparing to leave the bank and has since succeeded Lewis as the bank's CEO. The SEC said Mayopoulos wasn't terminated for his job performance or his legal advice in the days following a shareholder vote approving the merger.
"Upon review of the underlying materials provided by the parties here and by the attorney general, the court concludes that none of the evidence directly contradicts the bank's assertion that Maypoulos' termination was unrelated to the nondisclosures or to his increasing knowledge of Merrill's losses," the judge said.
The SEC had alleged Bank of America violated federal proxy laws by failing to disclose "extraordinary financial losses" at Merrill Lynch prior to a shareholder vote Dec. 5, 2008. Merrill Lynch ultimately reported losses of $27.6 billion for 2008.
The regulator also had alleged that Bank of America told investors in its proxy that Merrill Lynch agreed it wouldn't pay bonuses or other compensation to executives before the takeover deal was closed without Bank of America's consent, but had already "contractually authorized" Merrill Lynch to pay up to $5.8 billion in bonuses.
Merrill Lynch ultimately paid $3.6 billion in bonuses shortly before the merger closed.