Tuesday, August 4, 2009

Bank of America Settles SEC Charge for $33 Million

I have a few bank accounts with Bank of America (BofA), so it's disturbing to see wasteful regulatory penalites paid to the government by BofA while I worry that my money is less than safe and secure in a bank that lost it's shirt last year in the mortgage loan crisis. Here's the rest of the story by my favorite emailed newsletter, Am Law Litigation daily:

Bank of America Pays $33 Million to Settle SEC Charges That It Failed to Disclose Merrill Bonuses to Investors

On Monday, August 3, 2009, Bank of America agreed to pay $33 million to settle SEC allegations that it lied to investors by failing to disclose the $5.8 billion it had agreed to pay to Merrill Lynch & Co. executives before it bought Merrill in September 2008. The settlement came within moments of the SEC's filing of its complaint against BofA http://editorial.incisivemedia.com/c/11XpVJEt09sT5m4pLI in Manhattan federal district court. The SEC's press release on the settlement is here http://editorial.incisivemedia.com/c/11XpW8SNVXhgmwOIyv.
SEC enforcement division director Robert Khuzami called the settlement "significant." So let's take a look at how "significant" $33 million is to Bank of America, which lost $26.8 billion in 2008. For instance, what percentage of the $5.8 billion that BofA secretly agreed to pay to Merrill execs does $33 million represent? Here's the "significant" answer: .57 percent. Or perhaps you'd like to know what percentage of Bank of America's 2008 bonus pool $33 million was. According to the July 30 report on executive bonuses http://editorial.incisivemedia.com/c/11XpWy78RL5DDHz1li issued by New York State attorney general Andrew Cuomo, BofA paid out $3.3 billion in bonuses last year. The bank, in other words, coughed up exactly 1 percent of its bonus pool to the SEC. Ouch--that must really hurt the 172 Bank of America employees who received bonuses of more than $1 million last year, not to mention the 696 Merrill Lynch execs who got more than $1 million.
As part of the settlement, Bank of America did not admit guilt but consented to a judgment enjoining it from violating proxy solicitation rules. The bank was represented in SEC negotiations by Lewis Liman of Cleary Gottlieb Steen & Hamilton, whose office referred our call for comment to Bank of America.
In its complaint, the SEC alleged that Bank of America had already authorized Merrill Lynch to pay up to $5.8 billion in discretionary bonuses for 2008 when it announced its acquisition of Merrill Lynch in 2008, even though proxy materials soliciting shareholder votes on the merger stated that Merrill Lynch had agreed not to pay year-end bonuses or other discretionary compensation to executives without Bank of America's consent. The complaint asserted that the proxy statements were materially false and misleading.

Wachtell, Lipton, Rosen & Katz represented Bank of America in preparing the proxy statement, while Cravath, Swain & Moore served as Merrill Lynch's counsel for the deal. The firms did not return calls seeking comment.

In a statement announcing the complaint and settlement, the SEC's Khuzami said, "Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants significant financial penalty."
The bank released a statement describing the settlement as "an important step forward for Bank of America [that] allows us to focus our energies on enhancing stockholder value." Additionally, the statement says, "Bank of America believes that the settlement...represents a constructive conclusion of this issue."

But not everyone is willing to let go so quickly of the bonus issue that fueled populist rage this spring. Andrew Cuomo put out his own statement http://editorial.incisivemedia.com/c/11XpWXltNyU0USjk85, saying he was "pleased" that the SEC had taken action, but warning that "we want to be clear that our investigation...will continue." (You remember: That's the investigation in which Cuomo forced BofA to cough up the names of Merrill Lynch's bonus recipients http://editorial.incisivemedia.com/c/11XpXmzOJmIoc33CUS, despite BofA's strenuous objections.) We're also guessing that the plaintiffs lawyers who fought to be named lead counsel http://editorial.incisivemedia.com/c/11XpXLO9FawLtdNVHF in the shareholder class action against Bank of America aren't going to go away anytime soon. We called Frederic Fox of Kaplan, Kilsheimer & Fox and Max Berger of Bernstein Litowitz Berger & Grossmann to ask, but we didn't hear back. Peter Hein of Wachtell, who's defending BofA in the class action, told us he "wasn't in a position to comment at this point" on the SEC settlement.

--Drew Combs and Alison Frankel (both rock!)