New York - A New York judge on Monday threw out a government settlement with Bank of America for misleading its investors about billions of dollars in bonuses paid to Merrill Lynch executives when it acquired the investment bank. In throwing out the 33-million-dollar settlement with the Securities and Exchange Commission, Judge Jed Rakoff ensured that the case would appear in court before February 1.
While seeking stockholder approval of the deal to acquire Merrill Lynch, the Bank of America said that Merrill would not pay year-end bonuses to its executives. But the bank had actually already reached a deal with Merrill Lynch that allowed it to pay 5.8 billion dollars in bonuses.
The SEC alleges that stockholders were misled when they were told no bonuses would be paid, while the companies had actually already agreed on a payment plan. This information must be disclosed under financial regulations. Under the SEC settlement announced last month, the bank agreed to pay a fine without admitting fault.
The judge called the settlement neither fair or adequate, noting that the bank's managers could come out of the agreement unfazed. His decision to toss out the agreement is unusual, as most such settlements are approved.
