Legal News

In BofA/SEC Case, Wachtell, Shearman Get Shoved Toward Spotlight

By Ashby Jones

The big law-n-business story of the summer (and possibly the year?) continues to get ample coverage from our own WSJ, as well as other pubs. Wednesday’s Journal contains two articles on Judge Jed Rakoff’s decision to shoot down the proposed $33 million settlement between the SEC and Bank of America. Let’s briefly take you through both of them. (Click here for LB background on the BofA/SEC case.)

Spotlight on the Lawyers: Because this is a law blog, first, let’s tackle the lawyers. WSJ reporters Nathan Koppel, Amir Efrati and yours truly write today about the awkward position in which Judge Rakoff has placed both Wachtell Lipton and Shearman & Sterling. In his ruling, Rakoff funneled some of his ire toward the lawyers involved. The SEC stated in court filings that lawyers “made the relevant decisions concerning the disclosure of the [Merrill] bonuses” at the heart of the case. Judge Rakoff retorted: “If that is the case, why are the penalties not then sought from the lawyers?”

Legal experts say that the SEC is likely to take a closer look at the role of the lawyers going forward. And if either BofA executives or the bank itself attributes their actions concerning disclosure of the Merrill bonuses to the legal advice they got, the attorney-client privilege concerning that advice could get waived — opening the firms up to further scrutiny. Neither Shearman nor the Wachtell lawyer who led the engagement, Ed Herlihy, provided comment.

The SEC Might Need a Dentist . . . because Rakoff just removed some of its teeth. The WSJ’s SEC reporter, Kara Scannell, has a story today on the broader impact Rakoff’s ruling has for the SEC going forward. In her story, Scannell quotes Wayne State’s Peter Henning, who sums up the situation pretty well:

Peter Henning . . . noted that Monday’s ruling says the SEC stopped pressing forward with its investigation after interviewing about a dozen executives.

That suggests the agency “will bow to expedience,” he said. “That doesn’t restore your reputation very well. They were hoping to slip a quick and dirty settlement past the judge and got called on it.” Mr. Henning said the “emperor-has-no-clothes” ruling might cause other federal judges to ask tougher questions of future SEC settlements.

On Fairness and Securities Law: Finally, the WaPo’s business columnist Steven Pearlstein has an amusing piece out Wednesday in which he feigns horror at Rakoff’s bold move.

Writes Pearlstein, in a paragraph that made us giggle just a bit:

And what does fairness — or as Rakoff defined it, “elementary notions of justice and morality” — have to do with securities law? Hasn’t he learned that securities law is supposed to be about the triumph of form over substance, about generating endless paperwork for lawyers while giving shareholders the illusion of knowing what management is up to?

Full post as published by Law Blog - WSJ.com on September 16, 2009 (boomark / email).