A judge on Wednesday balked at signing off on a US$33 million proposed settlement between the Securities and Exchange Commission (SEC) and Bank of America Corp (BOA) over executive bonuses.
BOA on Monday agreed to pay the penalty to settle government charges that it misled investors about Merrill Lynch’s plans to pay bonuses to its executives.
In seeking approval to buy Merrill, BOA told investors that Merrill would not pay year-end bonuses without BOA’s consent. But in its complaint filed with the US District Court for the Southern District of New York, the SEC said BOA had already authorized New York-based Merrill to pay up to US$5.8 billion in bonuses and didn’t share that information with shareholders.
That rendered a statement BOA mailed to 283,000 shareholders of both companies about the Merrill deal “materially false and misleading,” the SEC contends. BOA agreed to settle the charges without admitting or denying the allegations.
But the settlement is subject to court approval, and on Wednesday Judge Jed Rakoff declined his consent, pending results of a hearing on Monday.
In a statement late on Wednesday, Rakoff said the proposed settlement “would leave uncertain the truth of the very serious allegations made in the complaint.” The judge also said the agreement “in no way specifies the basis for the US$33 million figure or whether any of this money is derived directly or indirectly” from public funds advanced to BOA as part of its bailout.
BOA, along with Citigroup Inc and insurance giant American International Group, is among the largest recipients of government aid. It has received US$45 billion from the federal US$700 billion bank rescue program.
Charlotte, North Carolina-based BOA agreed to purchase Merrill in a deal that was hastily arranged between Sept. 13 and Sept. 14 last year, the same weekend that Lehman Brothers collapsed. BOA CEO Ken Lewis and Merrill Lynch CEO John Thain announced the deal on Sept. 15.
Merrill ended up paying US$3.6 billion in bonuses last year, the SEC said, even though it lost US$27.6 billion that year, a record for the firm. The bonuses amount to nearly 12 percent of the US$50 billion that BOA paid for Merrill.
Meanwhile, Goldman Sachs Group Inc, one of the US banking industry’s top performers, said on Wednesday that government agencies have asked about its compensation practices and use of credit derivatives.
In a filing with the SEC, Goldman said it is cooperating with the requests from undisclosed regulators.
Politicians have recently questioned the methods big banks use to determine compensation packages, especially in the wake the government’s bailout last fall of the banking sector, known as the Troubled Asset Relief Program (TARP).
Last week, New York Attorney General Andrew Cuomo released details on bonuses paid last year to the initial nine banks the government agreed to provide with TARP funds, including Goldman Sachs.
Goldman, which received US$10 billion as part of the program, paid out US$4.82 billion in bonuses last year. The New York-based bank, which has long been considered one of the strongest banks amid the downturn, repaid the TARP money it received in June.
Cuomo said Wall Street banks have failed in recent years to tie bonuses to actual performance.
Banks have also faced criticism for use of risky derivatives contracts, which have been partly blamed for the collapse of Goldman’s competitor Lehman Brothers Holdings Inc and the near-collapse of insurer American International Group Inc.
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