In strikingly unenthusiastic fashion, federal Judge Jed Rakoff signed off on the Securities and Exchange Commission's plan to fine Bank of America $150 million after failing to tell shareholders of about $16 billion in impending losses at Merrill Lynch.
“While better than nothing, this is half-baked justice at best,” wrote Mr. Rakoff in his ruling released Monday, a week before the case was scheduled to go to trial. “The amount of the fine appears paltry.”
The judge wrote in his report that his court was “shaking its head” and that, based solely on the merits, the settlement between the SEC and BofA should be rejected as “inadequate and misguided.” Yet he elected to go along with the SEC's proposal, citing deference to the authority of regulators and adding that federal judges should be wary of the “power to impose their own preferences.”
The judge's statement could provide a boost for New York state Attorney General Andrew Cuomo as he pursues his own case in the matter, which stems from what BofA failed to alert shareholders about as they prepared to vote on the $50 billion acquisition of Merrill Lynch in late 2008. Mr. Cuomo's case is much more ambitious than the SEC's, since not only does he charge the bank with fraud but also says former Chief Executive Ken Lewis and former Chief Financial Officer Joe Price knowingly misled shareholders.
In his ruling, Mr. Rakoff cited depositions taken by Mr. Cuomo's office of BofA officials, and while he said he was satisfied that they said nothing to contradict the bank's claims of what happened, the judge also added that “plausible contrary inferences” could also be drawn.
The judge's ruling also seems like a final slap at the reputation of the SEC. The federal agency was prepared to accept a $33 million fine from BofA last year until Mr. Rakoff rejected that settlement.
In the end, the judge signed off on the $150 million penalty—equal to about 3% of BofA's pretax income last year—by citing a distinguished soothsayer and baseball player. In considering the tortured nature of the BofA case, the judge quoted Yogi Berra, who is said to have said: “I wish I had an answer to that because I'm getting tired of answering that question.”
"We are very pleased that the settlement with the SEC has been approved," a BofA spokesman said.
The SEC elaborated somewhat. "The settlement calls for the imposition of the largest financial penalty ever assessed for violation of the commission's proxy rules, and imposes corporate reforms designed to avoid future violations," noted SEC spokesman John Nester, in a statement. "The settlement was based on a thorough and objective assessment of the facts and the law, and sends a strong message that companies must give shareholders all material information about corporate transactions subject to shareholder approval."
Mr. Elstein is a reporter at Crain's New York Business, a sister publication to InvestmentNews.