I sure do as the blogger who would become known as Bam Bam Bigelow authored the post on him for Slabbed late last month. Yesterday Judge Jed S. Rakoff lowered the boom on both Bank of America and the captured (and toothless) regulators at the Securities and Exchange Commission. Nowdy, I sure do miss that SEC employee who had plenty of time to come here and trash the Rigsby sisters back in 2008 before George Bush and his band of idiots had to vacate DC taking their political hacks with them. After all what was evidently more important at the SEC in 2008 than trashing whistleblowers? It sure as hell wasn’t regulating these companies that took us all to the verge of bankruptcy last year.
The New York Times has the story with a hat tip to Professor Russ Abbott who was kind enough to link our earlier coverage. Welcome to slabbed Russ:
As President Obama traveled to Wall Street on Monday and chided bankers for their recklessness, across town a federal judge issued a far sharper rebuke, not just for some of the financiers but for their regulators in Washington as well.
Giving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff issued a scathing ruling on one of the watershed moments of the financial crisis: the star-crossed takeover of Merrill Lynch by the now-struggling Bank of America.
Judge Rakoff refused to approve a $33 million deal that would have settled a lawsuit filed by the Securities and Exchange Commission against the Bank of America. The lawsuit alleged that the bank failed to adequately disclose the bonuses that were paid by Merrill before the merger, which was completed in January at regulators’ behest as Merrill foundered.
He accused the S.E.C. of failing in its role as Wall Street’s top cop by going too easy on one of the biggest banks it regulates. And he accused executives of the Bank of America of failing to take responsibility for actions that blindsided its shareholders and the taxpayers who bailed out the bank at the height of the crisis.
The sharply worded ruling, which invoked justice and morality, seemed to speak not only to the controversial deal, but also to the anger across the nation over the excesses that led to the financial crisis, and the lax regulation in Washington that permitted those excesses to flourish.
Implicit in the judge’s remarks were broader questions on the anniversary of one of the most tumultuous weeks in Wall Street’s history: What do the giants of finance owe their shareholders and the investing public? And who will adequately oversee these behemoths?
It gets better as the Judge minced no words on the conduct of the SEC as we continue the story:
The judge accused Bank of America and the S.E.C. of concocting the settlement to effectively absolve themselves of further responsibility.
“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 ruling echoes a long-standing criticism that the S.E.C. has largely failed to prosecute cases against corporate executives, opting for quick settlements in which companies themselves are penalized instead of their leaders.
It comes as the agency, under its new leader, Mary L. Schapiro, is struggling to revive its reputation as an effective watchdog of Wall Street after presiding over a near-collapse of the financial markets and failing to catch the $65 billion Ponzi scheme run by Bernard L. Madoff.
Judge Rakoff called the $33 million settlement unfair and inadequate, and ordered Bank of America and the S.E.C. to prepare for a possible trial that would begin by Feb. 1.
Both the bank and the S.E.C. said they disagreed with the judge’s decision and were evaluating their legal options. Experts said the S.E.C. could decide to appeal the case to a higher court or drop the charges altogether instead of going to trial, but they said the agency was unlikely to exercise those options. Some analysts argued the case itself was irrelevant given that Bank of America’s takeover of Merrill had increased the bank’s profits, resulting in a surge in its stock price.
Typically the SEC and the Wall Street crowd continue to have their heads buried in the sand in yet another illustration of the disconnect between the money changers on Wall Street and the taxpayers on Main Street who bailed them out of their terrible decision. My experience is that money and the pursuit thereof dumbs many people down very effectively as we continue the Times story with some particularly idiotic comments from a self serving analyst (if there is a profession that should be held in lower public esteem than insurance defense lawyers and used car salesmen stock analysts are it for me):
The deal also saved Merrill from impending collapse and arguably prevented a greater financial calamity from unfolding in the immediate aftermath of the Lehman Brothers bankruptcy.
“I’m having a difficult time understanding who was harmed here,” said Richard X. Bove, a banking analyst with Rochdale Securities. “Why is this company being put into court over a series of events that benefited the nation, its economy, its financial system, the shareholders of Bank of America and the bank itself.”
In forcing the two sides to argue their case in court, Judge Rakoff hopes to expose the truth about whether Bank of America lied to shareholders.
“It’s a strong, blistering decision,” said John C. Coffee, a Columbia Law School professor who has taught a course along with Judge Rakoff for 21 years. “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.”
Judge Rakoff focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders.
“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.
The case is one of several investigations into the bank’s $50 billion deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is also investigating the disclosures of bonuses and Merrill’s losses last year.
Mr. Cuomo plans to file a complaint charging individuals at Bank of America in the next two weeks, according to a person briefed on the investigation.
The House Committee on Government Oversight and Reform is also looking into the merger.