A Decision Fred Hassan and Hans Becherer (And Their Lawyers) Ought to Read Very Closely. . . .

The transcendent opinion from US District Court Judge Jed S. Rakoff in SEC v. Bank of America should be top-of-mind tonight, as lawyers in Kenilworth, and Whitehouse Station likely prepare to try to settle as many of the securities-law complaints now pending (related to the arguably intentionally-delayed ENHANCE study disclosures), against the two companies, as possible, prior to merger time.

I suspect any set of proposals short of a $500 million figure would be similarly tossed, from the US District courtroom of the very able and independent Judge Cavanaugh, sitting in Newark, New Jersey:

. . . .Moreover, it is noteworthy that, in all its voluminous papers protesting its innocence, Bank of America never actually provides the Court with the particularized facts that the Court requested, such as precisely how the proxy statement came to be prepared, exactly who made the relevant decisions as to what to include and not include so far as the Merrill bonuses were concerned, etc.

But all of this is beside the point because, if the Bank is innocent of lying to its shareholders, why is it prepared to pay $33 million of its shareholders’ money as a penalty for lying to them? All the Bank offers in response to this obvious question is the statement in the last footnote of its Reply Memorandum that “Because of the SEC’s decision to bring charges, Bank of America would have to spend corporate funds whether or not it settled,” BofA Reply Mem. at 28, n. 20 –- the implication being that the payment was simply an exercise of business judgment as to which alternative would cost more: litigating or settling. But, quite aside from the fact that it is difficult to believe that litigating this simple case would cost anything like $33 million, it does not appear, so far as one can tell from this single sentence in a footnote, that this decision was made by disinterested parties. It is one thing for management to exercise its business judgment to determine how much of its shareholders money should be used to settle a case brought by former shareholders or third parties. It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away. And even if this decision is arguably within their purview, it calls for greater scrutiny by the Court than would otherwise be the case.

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 facade of enforcement and the management of the Bank with a quick resolution of an embarrassing inquiry –- all at the expense of the sole alleged victims, the shareholders. Even under the most deferential review, this proposed Consent Judgment cannot remotely be called fair. . . .

Indeed. And, per the New York Times, last month: ". . . .The SEC has to have noticed by now that most of the country agrees with the sentiments expressed by Rakoff," said John C. Coffee, a Columbia Law School professor who has taught a course along with Judge Rakoff for 21 years. "This builds up pressure. . . ."

I hope Hans Becherer's D&O policy is fully-paid-up. And CEO Hassan had better buckle up for a retirement calendar with many blocked-off days -- filled morning to evening with depositions. . . .