SEC v. Bank of Am. Corp.

653 F. Supp. 2d 507 (S.D.N.Y. 2009)



Society greatly benefits when lawsuits are amicably resolved, and, for that reason, an ordinary civil settlement that includes dismissal of the underlying action is close to unreviewable. When, however, as in the case of a typical consent judgment, a federal agency such as the Securities and Exchange Commission seeks to prospectively invoke the court's own contempt power by having the court impose injunctive prohibitions against the defendant, the resolution has aspects of a judicial decree and the court is therefore obliged to review the proposal a little more closely, to ascertain whether it is within the bounds of fairness, reasonableness, and adequacy--and, in certain circumstances, whether it serves the public interest. But even then, the review is highly deferential.


The Securities and Exchange Commission ("SEC") alleged that defendant Bank of America Corporation materially lied to its shareholders in the proxy statement of November 3, 2008 that solicited the shareholders' approval of the $ 50 billion acquisition of Merrill Lynch & Co. ("Merrill"). SEC claimed that Bank of America represented that Merrill had agreed not to pay year-end performance bonuses or other discretionary incentive compensation to its executives prior to the closing of the merger without Bank of America's consent when in fact, contrary to the representation, Bank of America had agreed that Merrill could pay up to $ 5.8 billion, nearly 12% of the total consideration to be exchanged in the merger, in discretionary year-end and other bonuses to Merrill executives for 2008. In the proposed consent judgment, the bank would be enjoined from making future false statements and would pay the $ 33,000,000 fine.


Can the proposed consent judgment in this case be considered fair, reasonable, or adequate?




The court held that the proposed consent judgment was not fair, reasonable, or adequate. The shareholders had been victimized by the bank's alleged misrepresentation, and the proposed judgment further victimized the shareholders by using their money to pay the fine. Overall, the court got the impression that the proposed judgment was designed to provide the SEC with a facade of enforcement and the bank with a quick resolution of an embarrassing inquiry, all at the expense of the shareholders. Further, the proposed injunction was too nebulous to comply with Fed. R. Civ. P. 65(d)'s requirement that the act restrained be described in reasonable detail. Finally, the fine, if looked at from the standpoint of the violation, was inadequate, in that $ 33,000,000 was a trivial penalty for a false statement that materially infected a multi-billion-dollar merger.

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