Bank of America (BA) may have thought it put the thorny issue of bonuses paid to Merrill Lynch executives behind them, but a federal court judge Monday rejected an agreement the bank reached with federal officials over the matter and has ordered a trial.
U.S. District Court Judge Jed Rakoff's decision voids last month's $33-million deal between the Securities and Exchange Commission and BofA, which announced its acquisition of Merrill Lynch in September 2008. The parties must now prepare for trial, scheduled to begin Feb. 1, he said in his ruling.
Last month's agreement "cannot remotely be called fair," Rukoff said, noting in his ruling that the deal "suggests a rather cynical relationship between the parties." He said the settlement came not only at the expense of shareholders but also the truth.
The case dates back to the Charlotte, N.C.-based bank's hasty purchase a year ago of Merrill Lynch, just as Lehman Brothers prepared for bankruptcy. In anticipation of the deal's Jan. 1 closing date, officials at the Merrill accelerated payment of $3.6 billion in bonuses to the investment bank's executives with BofA's knowledge.
Merrill paid the bonuses despite losing a record $27.6 billion last year. Those losses showed up on the balance sheets of BofA, one of the largest recipients of funds from the U.S. government's Troubled Asset Relief Program, or TARP.
The judge's rejection of the deal could embolden efforts of New York State Attorney General Andrew Cuomo to pursue charges against BofA. Officials of the bank have been accused of withholding material information about the firm's losses prior to a Dec. 5 meeting of shareholders last year to approve the merger deal.
According to Forbes.com, the judge's rejection of the settlement "will embolden Cuomo to attack BofA head on and get more info about just what happened at the bank when it took over Merrill," according to St. John's University law professor Anthony Sabino. Further, Sabino said, it will force the SEC to seek more money than the $33 million in civil damages for which the agreement called.
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