Corporate Governance

SEC v. BofA: Judge Rakoff Rejects the Settlement (Part 3)

By J. Robert Brown

So why didn't the Commission charge the individuals?  The Commission largely relied on an absence of intent.  With the officers relying on counsel, the Commission could not show that they knew or were reckless in not knowing about the false statements.  As the court described:  'The uncontroverted evidence in the investigative record is that lawyers for Bank of America and Merrill drafted the documents at issue and made the relevant decisions concerning disclosure of the bonuses.' Id. 

Reliance on counsel can indeed negate intent.  The defense, however, had a significant problem.  The Bank contended that it had not relied on the defense.  Judge Rakoff could only conclude that the 'S.E.C. never seriously pursued whether' privilege had been waived 'let alone whether it fit within the crime/fraud exception to the privilege.'  In fact, he did not believe the explanation.  In ultimately declining to approve the settlement, he indicated a need for the Commission to 'adequately account[] for why, in contravention of its own policy, . . . (quoting the policy), it did not pursue charges against either Bank management or the lawyers who allegedly were responsible for the false and misleading proxy statements.'

We have a number of primary materials, including this opinion, posted on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on September 15, 2009 (boomark / email).