By Jonathan Stempel
NEW YORK (Reuters) - Bank of America Corp
U.S. District Judge Jed Rakoff nevertheless called the settlement "half-baked justice at best," and in criticizing it may have given new ammunition to the many lawsuits over the merger, including litigation by New York Attorney General Andrew Cuomo.
Rakoff said it was clear that the bank had failed prior to a shareholder vote on the merger to adequately disclose the scope of Merrill's "historically great" losses, and that it had authorized Merrill to pay as much as $5.8 billion of bonuses.
"Despite the bank's somewhat coy refusal to concede the materiality of these nondisclosures, it seems obvious that a prudent bank shareholder, if informed of the aforementioned facts, would have thought twice about approving the merger or might have sought its renegotiation," he said.
The judge nevertheless said the law required him to give "substantial deference" to the SEC in approving the accord.
Bank of America spokesman Bob Stickler said the bank was "very pleased" that Rakoff accepted the settlement. The SEC and Cuomo's office had no immediate comment.
The settlement ends two SEC lawsuits alleging that Bank of America misled shareholders about the bonus payouts, which ultimately totaled $3.6 billion, and Merrill's losses, which reached $15.8 billion in the fourth quarter of 2008.
"DAMNING" RULING FOR BANK
Had Rakoff rejected the settlement, a trial over the bonuses would have begun on March 1.
The judge in September rejected a $33 million accord over the bonuses, faulting the SEC for accepting a lenient penalty that failed to hold individuals responsible.
"Bank of America might have won a settlement, but in the big picture, it lost," said Elizabeth Nowicki, a visiting professor at Boston University School of Law.
"Judge Rakoff's acceptance of the settlement is actually as damning as his rejection would have been," she went on. "Shareholders in other lawsuits will have guidance on how best to go forward, and will have encouragement from how poorly a jurist viewed the actions of Bank of America executives."
Among the lawsuits is a shareholder class-action case in Manhattan federal court, led by Ohio Attorney General Richard Cordray. His office was not immediately available for comment.
Rakoff's approval requires both sides to file by February 25 a revised settlement reflecting some changes they had accepted.
Bank of America's shares rose 28 cents, or 1.8 percent, to $16.16 in afternoon trading on the New York Stock Exchange.
DEFERENCE
The judge said he accepted the settlement despite its "very modest punitive, compensatory, and remedial measures that are neither directed at the specific individuals responsible for the nondisclosures nor appear likely to have more than a very modest impact on corporate practices or victim compensation.
"While better than nothing," Rakoff went on, "this is half-baked justice at best."
Rakoff particularly faulted the $150 million fine, which he called "modest" and said "penalizes the shareholders for what was, in effect if not in intent, a fraud by management on the shareholders."
The judge also accepted the settlement though Charlotte, North Carolina-based Bank of America rejected his proposal to let the SEC and the court help choose a pay consultant.
Rakoff nevertheless said that it is not judges' role to "impose their own preferences," and that he would exercise "self-restraint" in declining to block the settlement. The judge was appointed to the bench by President Bill Clinton.
YOGI BERRA
Cuomo on February 4 sued the bank, its former chief executive, Kenneth Lewis, and its former chief financial officer, Joe Price, who now oversees consumer and small business banking.
That lawsuit sets forth a significantly different set of facts, including that the bank in mid-December 2008 used an "empty threat" of backing out of the merger as leverage to get taxpayer aid from the government.
Bank of America has said the government essentially forced it to close the merger. It ultimately received $20 billion of federal bailout money, which it has since repaid.
Cuomo also called into question the facts behind the decision to fire general counsel Tim Mayopoulos, just as the bank's worry over Merrill's losses was morphing into alarm.
The SEC accepted the bank's argument that Mayopoulos was let go to keep Brian Moynihan, who was being displaced as corporate and investment banking chief, from leaving the company. Moynihan is now the bank's chief executive.
Rakoff said he had not determined who was right, but said there was "substantial evidence" to support the SEC's view.
The judge said the case reminded him of a comment by a Hall of Fame baseball player whose musings have long provided fodder in non-baseball contexts.
"Given the somewhat tortured background of these cases and the difficulties the motion presents," Rakoff wrote, "the court is tempted to quote the great American philosopher Yogi Berra: 'I wish I had an answer to that because I'm getting tired of answering that question.'"
The cases are SEC v. Bank of America Corp, U.S. District Court, Southern District of New York, Nos. 09-06829 and 10-00215.
(Additional reporting by Grant McCool in New York; Joe Rauch in Charlotte, North Carolina; and Dan Margolies in Washington, D.C.; editing by John Wallace and Gerald E. McCormick)
