Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, February 22, 2010

Judge Rakoff Approves SEC-BofASettlement

Judge Rakoff signed off on the proposed settlement of the two enforcement actions brought by the SEC against Bank of America in connection with the BofA-Merrill merger.  Here is the SEC's description of the settlement:

Under the terms of the proposed settlement, which are subject to approval by the Honorable Jed S. Rakoff, the $150 million penalty will be distributed to Bank of America shareholders harmed by the Bank’s alleged disclosure violations.  The Commission will propose a distribution plan at a later date.

The proposed settlement requires Bank of America to implement and maintain seven remedial undertakings for a period of three years:

Retain an independent auditor to perform an audit of the Bank’s internal disclosure controls, similar to an audit of financial reporting controls currently required by the federal securities laws.
Have its Chief Executive and Chief Financial Officers certify that they have reviewed all annual and merger proxy statements.
Retain disclosure counsel who will report to, and advise, the Board’s Audit Committee on the Bank’s disclosures, including current and periodic filings and proxy statements.
Adopt a “super-independence” standard for all members of the Board’s Compensation Committee that prohibits them from accepting other compensation from the Bank.
Maintain a consultant to the Compensation Committee that would also meet super-independence criteria.
Provide shareholders with an annual non-binding “say on pay” with respect to executive compensation.
Implement and maintain incentive compensation principles and procedures and prominently publish them on Bank of America’s Web site.
The proposed settlement includes a Statement of Facts describing the details behind the allegations in the actions based on the discovery record.   

According to the New York Times, Judge Rakoff approved the settlement without enthusiasm, describing it as "half-baked justice at best."  NYT, Judge Accepts S.E.C.’s Deal With Bank of America.

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