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Judge Rakoff Throws Out BofA’s Hypocrisy

Posted by Larry Doyle on January 5, 2010 8:40 AM |

Judge Jed Rakoff

Judge Jed Rakoff

The economic landscape of 2009 remains littered with amazing stories and tales yet to be told. Sense on Cents would hope that all these stories generate a full dose of truth, transparency, and integrity.

To eliminate the hypocrisy presented by the financial industry, America needs more arbiters like Judge Jed Rakoff. Let’s review recent developments in the merger of then failing Merrill Lynch with Bank of America.

Were the multiple billions in bonus payments accelerated to Merrill Lynch executives in late 2008 anything short of a total misappropriation of taxpayer funds at large and Bank of America shareholder funds specifically? Did BofA executives conveniently look the other way as Merrill “robbed the bank?” This point of debate is the central premise of the current court proceeding being heard by Judge Jed Rakoff.

BofA very conveniently did not include details of the Merrill bonus payments in pre-merger disclosure materials. What is BofA’s argument for that oversight? Yesterday, BofA attorneys made the case that its shareholders should have been aware of these bonus payments from media reports. Interesting. The media becomes the punching bag for not properly reporting, and now BofA attorneys use the media as a punching bag for reporting. Is this a joke or what?

How did Judge Jed Rakoff respond to such a ‘reach’ defense?  Andrew Longstreth of The American Lawyer reports and highlights Rakoff Rejects BofA’s ‘Media Reports’ Defense in SEC Case:

It’s a new year, but so far, the same old (sad) song continues to play for Bank of America in the courtroom of Manhattan federal district court Judge Jed Rakoff, who’s overseeing the Securities and Exchange Commission’s suit against the beleaguered bank. On Monday, Rakoff ruled that BofA cannot present expert testimony asserting that media reports should have alerted shareholders to the billions it planned to pay Merrill Lynch executives after the 2008 merger.

In BofA’s answer to the SEC’s complaint, the bank’s lawyers from Cleary Gottlieb Steen & Hamilton and Paul, Weiss, Rifkind, Wharton & Garrison argued that numerous media outlets reported in advance of the BofA shareholder vote on the Merrill merger that Merrill execs were expected to receive billions in bonuses. That assertion echoed the bank’s filings with Rakoff last summer, when Cleary lawyers offered up affidavits from the likes of Stanford Law School professor Joseph Grundfest, who contended that such media reports were part of the total mix of information available to Bank of America shareholders. BofA’s point: Since shareholders should have known from media reports that bonuses would be paid, the bank’s decision not to mention those bonuses in pre-merger disclosure materials was not important.

In rejecting that argument, Rakoff pointed to the bank’s own proxy statement, which specifically cautioned investors not to rely on other sources of information about the merger. “In effect, the bank is arguing that, even though it expressly warned its shareholders to disregard the media, it can now defend itself by asserting that a reasonable shareholder would have disregarded these warnings and, by consulting the media, perceived that the bank’s alleged lies were immaterial,” wrote Rakoff. “Even a zealous advocate might perceive that such an argument hints at hypocrisy.”

Wall Street firms may talk of of protecting taxpayers and shareholders, but talk is cheap and in this case hypocritical. Kudos to Judge Jed Rakoff for throwing that hypocrisy out of his courtroom. America needs more judges like Rakoff who possess the strength of conviction and depth of character to pursue the truth and transparency our country so badly needs.


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