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February 4, 2010 11:55 AM

BofA Settles with SEC, Faces New Suit from Cuomo

Posted by Zach Lowe

Here's one key question today: Are $117 million and some oversight provisions enough to placate Judge Jed Rakoff? As you'll surely recall, Rakoff ferociously rejected a proposed settlement agreement in September under which Bank of America would have paid $33 million fines to settle a Securities and Exchange Commission lawsuit charging the bank with failing to notify shareholders that Merrill Lynch, which BofA purchased under pressure in late 2008, was going to pay as much as $5.8 billion in employee bonuses in early 2009. 

Rakoff dismissed the proposed $33 million settlement as "trivial" and "absurd," and wondered why the bank--and ultimately its shareholders--should pay the fine instead of the individual executives who committed the alleged disclosure violations. He even raised the possibility that BofA's outside counsel at Wachtell, Lipton, Rosen & Katz might deserve some punishment. 

Well, today the SEC announced that the agency and BofA have struck a new proposed settlement subject to Rakoff's approval. Under the terms of this new deal, the bank would pay $150 million in fines, up from $33 million in the scuttled deal. That $150 million would be distributed to shareholders under the terms (still unannounced) of a distribution plan. The bank would also agree to a series of new oversight provisions, including: the hiring of an independent auditor and outside counsel to monitor financial statements and disclosure; a provision guaranteeing that the bank's CEO and CFO personally review all annual and merger proxy statements; and a requirement that directors on the bank's compensation committee be fully independent from the bank. 

Will that be enough for Rakoff? The bank surely hopes so, as do its outside lawyers at Wachtell, Cleary Gottlieb Steen & Hamilton, and Paul, Weiss, Rifkind, Wharton & Garrison. The bank has agreed to turn over a heap of formerly privileged documents, some of which presumably include communications between BofA execs and Wachtell. (It is possible that an error in the drafting of that privilege waiver will give plaintiffs attorneys in separate shareholder cases access to those documents, though that issue is still being litigated.)

Ah, but the BofA-Merrill litigation won't die so easily. New York attorney general Andrew Cuomo announced today that his office has filed a civil suit against BofA and three former BofA executives, including departed CEO Kenneth Lewis. The suit charges BofA with various disclosure violations in relation to the Merrill deal, according to The New York Times

We reached out to some of BofA's outside lawyers for comment, but we haven't yet heard back. We'll update you if and when we do.

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