Judge Holds SEC Accountable for Regulating Wall Street!

In a ruling yesterday which took many by surprise, Judge Jed S. Rakoff refused to accept a $33 million settlement by Bank of America that would have resolved the Securities and Exchange Commission’s (SEC) that the bank deceived shareholders in November about bonuses to be paid by Merrill Lynch, which the bank was in the process of buying. Judge Rakoff  accused the SEC and Bank of America of devising the settlement as a means of absolving themselves of further responsibility, and bringing to a quick end, an embarassing situation for both.

Judge Rakoff  accused Bank of America executives of failing to take responsibility for their actions in failing to adequately disclose bonuses paid to Merrill executives before the merger as well as evidence of large undisclosed losses at Merrill  to Bank of America  shareholders before their vote on whether to accept the  Merrill Lynch merger. The Judge denounced the deal in his ruling saying “the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger,” he wrote, and “the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.”  

The Judge was also upset over the fact that the fine would be paid by Bank of America shareholders, something the S.E.C.  has been criticized for in the past, whereby corporate executives escape prosecution and their companies are penalized instead of their management.  It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” Judge Rakoff wrote.

I believe John C. Coffee, a Columbia Law School professor said it best to the New York Times, “It is really a critique, not just of this case, but of a long-standing practice at the S.E.C., which effectively allowed corporate managers to buy immunity with their shareholders’ money.”

BRAVO, Judge Rakoff.  This sends the much needed signal to Executives of all corporations that they could be held liable for their management decisions.  It is only if these laws are enforced, that corporate decision-makers will begin making decisions based on the long term gain for their companies and not short-term personal gain with no repercussions.