A daily look at legal news and the business of law:
Bank of America's Woes: Textbook Fraud and Fragile Settlement?
The email trail detailed by Attorney General Cuomo in the fraud indictment against Bank of America (BAC) and former CEO Ken Lewis suggests B of A executives misled the board of directors and shareholders with a brazen disregard for their well-being. Their actions evoke the way the big banks issued garbage mortgages and sold them to investors as gold.According to the emails and Attorney General Cuomo, when the board of directors approved the takeover, they believed B of A was doing a deal with Lehman Brothers, not Merrill Lynch! And when shareholders approved the deal a few months later, they were completely in the dark about how bad Merrill's losses were. Not so B of A executives; Merrill kept them in the loop as the losses ballooned from $5 billion to $16 billion. Company inside and outside counsel weren't lied to either -- however, both pushed hard to get the executives to tell investors the truth.
Other than the Cuomo indictment, the only consequence for Ken Lewis to date has been an unconscionable $125 million severance package. As the company has plaintively noted in its response to Cuomo's charges, the Securities and Exchange Commission (SEC) looked at the same conduct and didn't come after Lewis in the same way.
If the fraud is as clear as Cuomo's allegations suggest -- and you don't get much more textbook than deliberately, against the advice of counsel, withholding material information like $16 billion in losses from shareholders before they vote -- it's a good question as to why the SEC didn't take action against B of A executives. The question may not be academic; the SEC's first attempt to settle its case with Bank of America foundered because Judge Rakoff wouldn't sign off on the deal. The Judge seemed particularly concerned that shareholders were paying for the executives' malfeasance, and that no executives were on the hook.
So will this new settlement fly with Judge Rakoff? It's not clear. On the one hand, it's structured so that past shareholders pay, not current shareholders (the fine is distributed to current shareholders). But on the other, no executives are yet on the SEC's hook. So what will Rakoff think?
Illinois High Court Sides with Injured Patients
In a case that may impact the health care debate in Washington D.C. -- at least, the "tort reform" part of it -- the Illinois Supreme Court threw out damage caps on medical malpractice lawsuits as unconstitutional under the State's Constitution, because the Legislature had impermissibly usurped a judicial function.
More on Lawyers' Money-Laundering
While the Senate report I noted yesterday didn't mention it, a Boston-area lawyer has just been charged with laundering $1.7 million of drug money. Also important to note about that report; the big law firm named -- Sidley Austin -- actually sought and received the federal government's permission to do what it did, whereas the two solo attorneys mentioned took no such care.
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