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Judge OK’s revised Bank of America settlement in Merrill deal

$150m accord is called ‘half-baked’

By Larry Neumeister
Associated Press / February 23, 2010

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NEW YORK - A federal judge said yesterday that he would reluctantly approve an amended $150 million settlement between the Securities and Exchange Commission and Bank of America to end civil charges accusing the bank of misleading shareholders when it acquired Merrill Lynch.

But US District Judge Jed S. Rakoff called the revised pact “half-baked justice at best’’ and said the court approved it “while shaking its head.’’ The dispute had been scheduled for trial next week.

Last year, the judge rejected a $33 million settlement stemming from the early 2009 acquisition, calling it a breach of “justice and morality.’’

Rakoff said yesterday in his written order approving the revised settlement that it was “considerably improved’’ but “far from ideal.’’

He said the new deal’s greatest defect “is that it advocates very modest punitive, compensatory, and remedial measures that are neither directed at the specific individuals responsible for the nondisclosures nor appear likely to have more than a very modest impact on corporate practices or victim compensation.’’

He added: “While better than nothing, this is half-baked justice, at best.’’

The SEC had accused Bank of America of failing to disclose to shareholders before they voted on the Merrill deal that it had authorized Merrill to pay up to $5.8 billion in bonuses to its employees in 2008, even though the investment bank lost $27.6 billion that year.

He said his approval depends on both sides formally ratifying the amended agreement by Thursday, including a change he had recommended - that an independent auditor to oversee accounting at the bank be fully acceptable to the SEC, with the judge having final say if the two sides cannot agree.

The new deal also requires that the independent auditor assess whether the bank’s accounting controls and procedures are adequate to assure proper public disclosures. And it calls for the bank to begin submitting executive compensation recommendations to shareholders for a nonbinding vote of approval or disapproval over the next three years.

The judge said he would have rejected the revised settlement, which he said provides shareholders a few pennies per share, if he were deciding the issue solely on the merits. But he said the law requires him to give substantial deference to the SEC’s view.

Bank of America spokesman Robert Stickler said the bank was pleased the settlement was approved. An SEC spokesman, John Nester, said the agency was also pleased, calling the accord “fair, reasonable, and in the best interest of investors.’’

The $150 million penalty is the largest ever levied by the SEC for a violation of that kind, Nester said, noting that the settlement also calls for internal changes to be made by the bank to avoid future violations of disclosure rules.