Wall Street Bonuses: A New Approach

Wall Street Bonuses: A New Approach

 
Wall Street bonuses have been the subject of much debate and criticism as the market crisis has unfolded. The public has expressed outrage; Congress has held hearings and imposed some limits; and the Administration has appointed a Bonus Czar.
 
Bank of America, in acquiring Merrill Lynch, tried a different approach: Shhh! Don’t tell anyone, not even the shareholders voting on the deal. The SEC found out. It filed and enforcement action. It seems that keeping things like huge bonuses quiet when soliciting votes for a merger violates the proxy provisions of the federal securities laws. SEC v. Bank of America Corporation, Case No. 09 CV 6829 (S.D.N.Y. Filed Aug. 3, 2009).
 
The Commission claims Bank of America and Merrill Lynch concealed from shareholders voting on the acquisition of the broker by the bank an agreement under which Merrill executives would be paid huge bonuses. According to the complaint, BA and Merrill negotiated the primary terms under which the brokerage firm would be acquired on September 13 and 14 in the wake of the Lehman Brother’s collapse. One of the key items was the agreement to pay discretionary year end bonuses for 2008 to Merrill officers and employees. The bank agreed that Merrill could make payments up to $5.8 billion with a recorded current year expense of up to $4.5 billion.
  
Subsequently, the board of each company approved the deal. It was announced on September 15, 2008.