Legal Commentary

Executive bonuses are in the news again, with the SEC complaint against Bank of America for allowing Merrill Lynch to pay up to $5.8 billion in discretionary bonuses, despite proxy statements suggesting that no bonuses would be paid.  Bank of America and the SEC agreed to a settlement, but these settlements are subject to judicial approval for being "fair, reasonable and adequate."  Judge Rakoff of the SDNY refused to approve it without a hearing, held yesterday, in which he called for more information.  A few thoughts:

First, the coverage seems to focus on whether TARP money was used to pay the bonuses, and outrage because $33 million seems small in comparison to the billions paid out.  But we should also be asking the usual question about corporate penalties: Where is that $33 million coming from and where is it going?  Is the penalty being paid with TARP funds?  (Is there any way to distinguish the source of money?)  Who gets the money?  In other words, maybe the cash is going from taxpayers to the Treasury, minus administrative costs.  Or the penalty could be distributed to injured shareholders through a Fair Fund.  It complicates the "bigger is better" account.