Bank of America’s $150-million settlement with SEC gets grudging approval

A federal judge reluctantly approved a settlement between Bank of America and the Securities and Exchange Commission, ending one of the highest-profile legal cases to come out of the financial crisis.

The SEC last year sued Bank of America, accusing it of lying to shareholders in late 2008 to speed the purchase of Merrill Lynch. Under the settlement, Bank of America will distribute $150 million to some of its shareholders and make several internal reforms.

U.S. District Judge Jed Rakoff, who last year rejected a $33-million settlement of the case, criticized the new accord as “inadequate and misguided” and dismissed the higher dollar figure as “paltry.” But he said judicial restraint forced him to approve it.

“While better than nothing, this is half-baked justice at best,” Rakoff wrote in his opinion issued Monday.

Judges typically green-light settlements reached by the SEC. But Rakoff last fall called the initial settlement a “contrivance designed to provide the SEC with the facade of enforcement.”

Rakoff has said that the BofA executives who oversaw the Merrill deal should have to pay some penalty. The SEC didn’t sue any individuals, and none will be penalized under the settlement.

The settlement doesn’t end Bank of America’s legal troubles over the Merrill Lynch deal. On the same day this month that the SEC announced terms of the latest settlement, New York Atty. Gen. Andrew Cuomo filed his own suit against the bank -- and two executives -- over its handling of the Merrill acquisition. Rakoff noted in his opinion Monday that Cuomo’s office “reached a far more sinister interpretation of what happened” than the SEC.

A particular point of contention between the SEC and Cuomo was their interpretation of the firing of Bank of America’s general counsel during the negotiations to buy Merrill. Cuomo’s suit argues that BofA executives fired Timothy Mayopolous because he wanted to disclose the size of Merrill Lynch’s losses to shareholders when other executives did not.

Pressed by Rakoff on that question, the SEC and Bank of America last week presented evidence that Mayopolous was fired to make room for another BofA executive, who was expected to lose his job in the Merrill merger.

That executive, Brian Moynihan, has since become Bank of America’s chief executive.

Rakoff called the SEC’s interpretation of the events “a reasonable conclusion.”

The $150 million to be paid by Bank of America is to be distributed to investors who owned BofA stock at the time of the Merrill purchase. Rakoff said the money would amount to “no more than a few pennies per share.”

The accord also requires the bank to hire an executive compensation consultant for three years. Rakoff had said he would like the appointment of the compensation consultant to be approved by the court. The bank rebuffed that idea, and Rakoff chafed at what he called its “strong defense of the sacred cow of executive compensation.” The judge relented on that point but noted that he, as the court, did so “while shaking its head.”

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