About an hour ago,a federal judge struck down the proposed settlement between Bank of America and federal regulators over bonuses paid to Merrill Lynch executives. The online version of the New York Times runs the story, “Judge Rejects Settlement Over Merrill Bonuses.” I have pasted the text of the article below, and the twelve page order is also available from the NYT website.
I never have as much time as I would like to have in my Civil Procedure course to go deeply into the relationship between courts and settlements. Most years, I spend about fifteen minutes on the topic and move along with other things. This year, I’m thinking the time may be right for a richer exploration of the topic with my students.
Michael Moffitt
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Judge Rejects Settlement Over Merrill Bonuses
By LOUISE STORY
Published: September 14, 2009
A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.
The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan, The New York Times’s Louise Story writes. (Read the decision after the jump.)
The ruling forces the commission to go back to the drawing board in its case against the bank, which focused on bonuses paid out by Merrill Lynch late last year, just before that firm was taken over by Bank of America.
The case at hand involves $3.6 billion in bonuses that were paid out by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.
The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure around the bonuses.
“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,” the judge wrote.
Bank of America has argued in its filings with the judge that it did nothing wrong in its disclosures.
The case before Judge Rakoff is just one of several investigations into the bank’s deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is also investigating the bank’s disclosures of bonuses and of Merrill’s surprise losses late last year. The House Committee on Government Oversight and Reform is also looking into the merger.
