Legal News

Rakoff to SEC, BofA: ?Thanks For This. Now Try Again?

By Ashby Jones

Did you ever have one of those teachers or professors who would let you submit an assignment over and over again until it was worthy of an ‘A’ grade? The good news was that with enough work, you could bring home a good grade. The bad: well, what a completely annoying hassle.

We were reminded of that scenario this morning when reading the latest on the Bank of America/SEC situation. Manhattan federal judge Jed Rakoff (pictured), playing the role of the teacher, has sent both pupils back to the table yet again, saying their latest disclosure — part of a broader attempt to get Rakoff to sign off on a $33 million settlement between the parties — was insufficient.

In short, Rakoff wants the explanation behind why a Bank of America proxy statement last November misled investors about bonuses for employees at Merrill Lynch, which was about to be acquired by the bank. On Tuesday, he stated another desire: to get the SEC to better explain why had agreed to a settlement without pressing the bank's executives harder. Click here for the WSJ story; here for the NYT story; here for previous LB coverage on the issue; here for Rakoff’s order.

According to Jess Bravin’s story in the WSJ, the SEC has said it couldn’t investigate individual executives’ culpability because they said they relied on lawyers’ advice. Unless the executives waived their right to keep the information shielded by the attorney-client privilege, the SEC said it would face “substantial obstacles” to building a case.

Rakoff on Tuesday criticized that reasoning. If that were the regulator’s policy, “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.” He said if the company insists on attorney-client privilege, there is no way to test the assertion and determine whether executives or their lawyers were culpable.

Wachtell, Lipton represented BofA and Shearman & Sterling represented Merrill. John Madden, the Shearman partner involved in the negotiations, told Bravin that the firm doesn’t comment on clients. Edward Herlihy, Wachtell’s lead lawyer on the deal, didn’t immediately respond to a call.

Like disappointed schoolchildren, both BofA and the SEC said, through spokespeople, that they’d head back to the drawing board — and get Rakoff more information. Subsequent submissions from the parties are due Sept. 9.

Full post as published by Law Blog - WSJ.com on August 26, 2009 (boomark / email).