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Have you ever felt helpless as Wall Street Masters of the Universe seem to get rewarded and re-rewarded for running their businesses into the ground? Have you shaken your head in disbelief as the government seemed unwilling or unable to take them to task? Have you wondered if you were the last person left with common sense or a concept of basic fairness? Well, my friends, you are not alone.
Today U.S. District Court Judge Jed Rakoff showed how financial regulation OUGHT to be done; with fairness, common sense and real logic instead of tortured pretzel logic.
Some background: When Bank of America bought Merrill Lynch, B of A told its shareholders that it would not be paying bonuses to Merrill’s executives. You know, the guys who had run Merrill into the ground?
That was not actually the truth. B of A allowed bonus payments to Merrill execs totaling. . . wait for it. . . $5.8Billion, or 12% of the total purchase price. That’s a lot of moolah, both in absolute terms, and in terms of the percentage of the value of the deal.
The SEC found out about the lie to shareholders and brought a case against B of A. They agreed to settle for $33 million and brought the settlement to Judge Rakoff for his approval.
Judge Rakoff has refused to approve the settlement.
[T]he parties were proposing that the management of bank of America – having allegedly hidden from the Bank’s shareholders that as much as $5.8 billion of their money would be given in bonuses to the executives of Merrill who had run that company nearly into bankruptcy – would now settle the legal consequences of this lying by paying to the S.E.C. $33 million more of the their shareholder’s money.
This proposal to have the victims of the violation pay an additional penalty for their own victimization was enough to give the court pause.
Then Judge Rakoff starts talking like a regular person. . . about fairness:
It is not fair, first and foremost, because it does not comport with the most elementary notion of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.
Then, he calls a spade a spade:
Overall, indeed, the parties submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S.E.C. with the façade of enforcement and the management of the Bank with a quick resolution to an embarrassing inquiry…"
[emphasis added]
Really, you must read the entire decision, 13 scathing pages calling out both the S.E.C. and B of A. It is a work of beauty, and a joy to finally see someone speaking plainly.
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Cynthia, this is beautiful!
Is this the decision that allows the whole shebang to be cracked wide open?
Beautifully rendered, but is it not pyrrhic, ultimately?
next thing you know, BoA’s going to try to get into the health insurance business.. then where will we be?
Jed “Right On” Rakoff.
A lovely piece of work indeed. Thanks, Judge Rakoff.
BAC claims it is going to try this case. I don’t think I would much care to try it in front of this Judge:
“The Bank’s argument that the proxy statement was not misleading rests in material part on reference to a schedule that was not even attached to the proxy statement,” p5, and more bad news on page 6, quoting the SEC’s pleading: “investors were not required to ignore Bank of America’s express statements in the proxy materials and rely instead on media speculation that may have suggested that these statements were misleading.”
If I’m an honest SEC lawyer, I’m feeling pretty good about my case.
LOL, I just wrote a seminal diary on this because I had not seen a post. I wrote it too for my Obama scandals list. It is item 75.
My closing point was that this case took place within the Obama Presidency. The proxy statement is from November 2008 so even most of the investigation occurred after Obama was President. On the same day as Judge Rakoff’s decision, Obama gave his speech on financial regulation also in New York. Judge Rakoff’s decision involving Obama’s SEC highlights how little substance there is to his calls for reform.
While I applaud Judge Rakoff’s decision I am appalled that it takes the judiciary to do what the Legislative and Executive branches should be doing, and clearly aren’t.
A thin reed to base “democracy” on, indeed.
How much of that stuff actually took place before his inauguration? Because anything before should get charged to Shrub. I’d argue athat anything in the first couple of weeks after inauguration, while people are being nominated for offices, also should be on the sheet of the previous administration, because they’re still effectively running the show.
How exactly could the Executive intervene in this case? Protecting Geithner would seem to job-one for them, and his ass (among other administration favorites) looks exposed.
Attributing things “before” doesn’t work. The ruler gets credit for everything on his watch, and the reverse. So don’t make excuses for O. He took command on 1/21/09 and everything after that date is to O’s ledger.
Just a question from someone who’s not a lawyer or a financial wizard. Did the Bush administration do to the SEC what they did to the Justice Department? And if so, might that not have had an impact into the beginning of this investigation?
The complaint and proposal for the consent judgment were filed on August 3, 2009 so this is very much an Obama baby. Rakoff told both sides to be ready to go to trial February 1, 2010.
What I’d like to know, as someone who isn’t a lawyer, is why the actions of BofA’s executives doesn’t constitute fraud. I didn’t see the word mentioned anywhere in the decision, and yet this certainly sounds like fraud to me.
Now, where did I put that list of countries that don’t have extradition with the US?
Damn, lots of folks are going to need to be consulting that list if, now they tell us, the SEC isn’t allowed to concoct contrivances to help banksters in their careers of crime. Look, the settled way of doing business, at least since the 80s, has the concocting of such contrivances as the sole function of the SEC. Now some judge tells us that, no, the purpose of a regulatory agency is to enforce oversight laws, not help businesses evade them. What next, a Civil Rights Division over at DoJ that enforces civil rights laws rather than help local governments evade them? A Voting Rights Division that helps people vote, rather than help suppress turnout? Where will it all end?
watertiger is upstairs!
Late Night: Mike Huckabee’s “Dixie” Dog Whistle
From what Judge Rakoff had to say about the SEC and their filings, that’s a mighty big “if”.
The initial damage was done late in the Clinton Administration, and continued on in the Little Bush administration. Some background information.
Well, I’m sure you feel pretty good about the 5-4 judicial decision that 5 partisan, activist, right-wing ideologues that put G. W. Bush in the White House in 2000. They simply overturned democracy and the will of the people.
Of course, it will take more than a few decades for the courts to prosecute the tons of corporate fraud cases that piled up under the Bush administration whose SEC chief toady, Christopher Cox, aided and abetted the massive Wall Street Ponzi schemes and swindlers who took our country down the road to insolvency.
Yeah, tell us all about “little substance.” Especially since the Bush SEC was one of the main perpetrators of the corporate fraud and thievery. It made it easy on the judicial branch since they probably never saw a case during the Bush regime.
IANAL either, the answer to your question about the SEC is yes and no. The SEC has been the poodle, not the regulator, for the financials for decades. eCAHN might have some insight into how long. Anyway these are the guys who missed Berie Madoff’s in your face Ponzi scheme for 20 years. I don’t remember the SEC doing squat in the face of the dot com bubble. Sort of a Clinton-Bush crossover, but they weren’t around either for Enron. Under Bush, the SEC became even weaker and more anti-regulatory culminating with Christopher Cox who was a true non-entity if ever there was one.
So of course it’s now all Obama’s fault… I see… Thanks.
See my #21.
I think you are new here so welcome to the Lake. I wrote a well regarded Bush scandals list with 400 entries. You can find that one by clicking on my name. I look to the facts not the personalities. I started an Obama scandals list when I concluded we were going to see little change whether we believed in it or not. That list has 75 entries but I have not yet posted it to the web in its entirety.
There. Now you’ve seen the light. He’s a “ruler” after all. You’ll feel much better now…around here at least.
Oh, twiddle twaddle.
(I owed you that one.)
It is Obama’s responsibility. He’s the President and that’s the way our system works. I have said since last year the simplest way to tell if Obama was serious about financial reform is if he would re-impose Glass-Steagall. I don’t recall him mentioning it once. His statements and those of Geithner to date are about how to maintain the same crony casino capitalist system that precipitated the economic disaster we are facing. I have written for months how the fundamentals in the economy are deteriorating. From Obama, Geithner, Summers, Romer, Goolsbee, Orszag, and Bernanke, we get platitudes about the stock market and re-assuring noises. Pumping several trillion dollars into a broken can not fix it. It will mask the underlying problems for a time but at some point the money will run out, the stock market will fall, and those underlying problems will reassert themselves. They, like the Bush Administration, before them have refused to look at the math. In the long run the math always wins.
God Damn! Another hero! Thanks
Thanks, Cynthia!
What hoot! Loved the Oscar Wilde quote!
and “let’s put the penalty to the lawyers.”
and then, let the truth games begin . . . . Trial set for Feb 2010.
The demise of the SEC began in 1981 under John Shad and Saint Ronald. One thing they did was to shift serious enforcement folk in the 3 to 10 year experience range from their real cases onto things like insider trading and market regulation. The real enforcement people quit.
Whoa, he brought the hammer down hard.
Is it wrong that I laughed my ass off at:
And continued to intermittently laugh at a takedown so elegant it should be taught as poetry.
Because if that is wrong, I don’t wanna be right.
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Finally. The Judge should start in motion the appointment of a special investigation based on this ruling. It’s an outrage that these kleptocrats from B of A and Merrill have been promulgating for far too long. I’d start with the legal counsel for B of A if I were leading that investigation. This seems to be a case of folks knowingly making false statements to various investigative bodies and covering up malfeasance at just about all levels of the B of A and SEC. At a very minimum, there is incompetence at SEC for even attempting to agree to such a minor fine given the amount of money involved in this fraud against the shareholders.
$33 million is just over 1/2 of 1% of the $5.8 billion in payments that BofA told its shareholders it would NOT pay to Merrill’s extraordinarily risk tolerant and incompetent management. Try getting that deal from your mortgage holder or from the IRS on a late payment; they’d laugh themselves silly.
Whether those bonuses were for past “performance” or to keep Merrill’s old boys from running away to better jobs, it doesn’t seem to matter. Any rationale is laughable. In reality, neither Merrill nor BofA had a reason; they did it because that’s just how things are done on the Street, and neither would have Street cred if the bonuses weren’t paid.
How rational, prudential, even judicious was this excellent opinion. There’s no good excuse for the payment, let alone for lying about it. Neither does it work to claim that the BofA’s statement was technically true – it would not in future pay such bonuses because at the time they made these statement they had already been paid. That statement still works a fraud on BofA’s shareholders, those mythic owners before whom all managers quake.
Ten percent of the bonuses paid would seem a useful penalty amount, plus recouping all bonuses paid. That would be just in the context of this case and set an example that might deter others from similar behavior. Neither goal, however, seems of interest to the SEC, or the Bush or Obama administrations. Goldman Scratch might not like regulators actually, um, regulating. Lord knows keeping Goldman happy is good for, well, only Goldman.
What little I saw, from a distance, was some kind of idiot-dazed cowtowing to the brainiacs who were making so much magical, non-existent, only-on-paper money. Think “Emperor’s New Clothes” with a few IPOs, a lot of arrogance, and far too much ego in the mix.
‘poodle’ is far too kind a description.
That is far too humble, Hugh.
Your list is phenomenal.
Or as my kids might say, ‘awesome’, ‘epic!’, and it ‘kicks ass — totally.’ ;-))
First, whenever the SEC charges a “material omission” or “material misrepresentation” – that means a fraud has been perpetrated on investors. The class action lawsuits will follow, which WILL reach into the pockets of the individual wrongdoers. Cox’ SEC never had a taste for going after the lying officers, even in the Enron aftermath.
Surprisingly, that old brokerage head, Donaldson (of Donaldson, Lufkin, Jenrette) really did bring in an investor-protection mentality (knowing that investor confidence is grounded on honest disclosure) and really boosted budget and hiring in the wake of Enron. And what did Bush’s hedge fund masters do? Ordain the placement of Cox, who was the actual author of THE most anti-investor piece of legislation in history, PSLRA. He slashed budgets, arrogated approval of ALL investigations to his personal review (when they had been regional decisions before), and personally reduced fines in staff proposals. Cox is the ENEMY of investors, and is as big a criminal in all this as Madoff, Stanford, and Geithner. (Tiny Timmy? Don’t get me STARTED on all the unwaivable conflicts of interests HE’s involved in! You can tell Obama has no legal practice experience at all – else he would NEVER have hired someone so conflicted to be in a regulatory position.)
The SEC at present – and I was there during its demise – is rudderless. Worse, in the same way DoJ was seeded with incompetent and politically-beholden GOP lackeys, the SEC is laden with Cox’ legacy of hiring Business, Investment Bank, and hedge fund lackeys who have no interest in pursuing the liars and fraudsters who populate the corporate HQs of most public companies. They are only interesteed in punching their tickets to get hired as “Compliance Specialists” at the offending market manipulators. You could remove the top five layers of management at the SEC and you MIGHT have a chance at making it effectivr again. You leave the current managers and regional leaders in place, and the incompetence and blind-eye-turning will continue apace. And the new boss? Who got rich from heading the most criminal-rife brokerage in the world? She is a damn joke. Don’t expect ANY reform from her. She is there, in fact, to make sure nothing really improves, from an investor perspective. ANYONE who invests in a market overseen by the SEC is a fool.
The Bush administration scaled back regulatory enforcement across the board, including at the SEC and the IRS, as well as the DoJ. Its basic approach was to hire lobbyists for top slots; fire or sideline top and mid-level staff that weren’t with the new, industry-friendly program; to put very junior, politically correct yes-persons in charge of those with seniority and expertise; and to give the latter as little or as much to do as possible, whichever was most likely to get them to leave.
In certain agencies, another effective tool was to put security clearances ”under review”. That non-appealable administrative action suspended the clearance until the review was completed, which had the effect of prohibited staff from doing their work. It kept them out of official meetings and made it perilous to participate in the informal networks that make Washington work, because participation required being informed and giving information to someone without an active security clearance causes a heap of trouble. (The Bush administration denied it did such things.)
Denuding the DoJ kept the politicians and their henchmen safe from direct legal challenge. But denuding the SEC, IRS, EPA, Labor Depts, AG, etc. were big favors to corporate supporters. It saved them millions in costs and, in many cases, earned them billions via fast merger or acquisition approvals; issuance of no-bid contracts; the non-collection of oil, gas, mineral and timber royalties; and the non-enforcement of EPA, workplace, labor and anti-trust rules. It also broke and demoralized staff and the very notion of government service as a calling and career.
An added bonus for corporations is that these agencies may take years to get back on their feet, some may never be as effective or powerful again. That’s a generational victory for the anti-FDR crowd, which has spent decades attempting to achieve such things, if ever there was one. Dangerously for representative government, Obama doesn’t seem to be taking much corrective action to start the recovery ball rolling.
It always makes me so pleased, as a law student, to see the justice system live up to its name and deliver justice. Makes one shed a tear.
Also, the way he rips into them is rather amusing. It’s rare to see a judge tear into someone like this. Must have really hit a nerve there.
Bet on it!
A pdf of the decision without scribd
I assume you were at least partly writing to answer my question. Thanks.
This part of the opinion is hysterical:
Okay, so it’s not hysterical if you’re not a lawyer. But actually it’s a novel argument. You could call it the “lemon socialism defense.” It translates into plain English. This seems to be the gist of the August 10 colloquy:
Thank you for that post!
Beck is impervious to the caprices of ad revenue. Remember that he’s on the GOP official propoganda channel, aka FOX, and he’s doing a great job stirring up the stupids, aka, the GOP base.
If every advertiser bailed, I’m sure Rupert Murdoch is willing to “carry” Beck so long as his show has a suitably high number of viewers.
Ooops! wrong topic.
sorry.
but I still mean it.
One can ony hope. I would LOVE to know what actually happened
I don’t KNOW for sure, but I think it’s a pretty safe bet.
I believe that Rakoff talked about the crime/fraud exception to attorney client privilege. So, not only “fraud” but also “crime” is on his mind