Tuesday, February 23, 2010

BofA Controversy Settled, Sort Of

Judge Rakoff reluctantly approved the $150 million settlement reached between Bank of America and the SEC over the bank's failure to disclose mounting losses at Merrill Lynch prior to the shareholders' vote that approved the merger. Still, the venerable federal judge blamed the bank for hiding "material information from its shareholders" and blamed the SEC for being "content with modest and misdirected sanctions." Judge Rakoff also asked the parties to distribute the $150 million to shareholders harmed be the alleged nondisclosures. So the bank, which is owned by shareholders, is being asked to pay its shareholders. Interesting. Sort of like writing myself a check from my own bank account. That'll teach me.

Of course, all of the leadership responsible for this colossal failure has moved on and the bank's new leadership would never allow such a thing to happen again. Right. Remember when Chuck Prince became head of Citi to solve the bank's legal problems? Then Vikram Pandit replaced Chuck Prince to solve its risk management problems? That's the one thing you can always count on with Wall Street. The revolving door will always shuttle through new and improved leaders who will continue to botch the job because their incentives will always be skewed to the short term. Walk the ethical tightrope now, collect your fat check and watch somebody else pay a small fine after you are long gone. The only thing different this time around is that government dollars were used to facilitate this bungled merger, which were immediately used to pay a bunch of people piles of money in 2008, a year in which both banks became insolvent. Maybe Andrew Cuomo will have better luck in crafting a more satisfying settlement.

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