A federal judge on Tuesday raised fresh questions about the US Securities and Exchange Commission’s settlement with Bank of America over bonus disclosures, calling the regulator’s explanation for why it did not charge individuals “puzzling”.
The SEC, in a court filing on Monday, said BofA’s alleged failure to disclose bonuses paid to Merrill Lynch employees before the companies merged was largely the work of attorneys who advised the banks. The regulator said it was constrained by the fact that the bank had not waived attorney-client privilege.
But Judge Jed Rakoff questioned why the SEC accepted the statements by bank executives that they relied on lawyers’ advice.
“If the SEC is right in this assertion, it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel . . . and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny,” he wrote. “This seems so at war with common sense.”
The settlement did not require BofA to admit or deny the commission’s allegations that BofA failed to tell the public at the time it bought Merrill that the Wall Street firm would pay $5.8bn in year-end bonuses.
In a separate filing on Monday, BofA said that it did not mislead shareholders and said it was “widely understood” that Merrill would pay out billions of dollars in year-end bonuses.
Mr Rakoff demanded to know why BofA agreed to pay $33m if it believed it had properly disclosed bonuses. If the bank did so “to curry favor with the SEC or to avoid retaliation by the SEC, the court needs to know the specifics”, he said.
Wachtell, Lipton, the law firm that advised BofA, and Shearman & Sterling, which represented Merrill, were not immediately available for comment.
BofA on Tuesday reiterated its belief that providing shareholders with details of the Merrill bonuses would have had “no material effect” on the outcome of the vote to approve the take-over.
The bank declined to comment further but is expected to comply with Judge Rakoff’s request for additional information by September 9. The SEC also said it would provide the court with more information.