With Southern District Judge Jed Rakoff’s blistering decision on Monday, rejecting the proposed settlement between the SEC and Bank of America Corporation,1 two key questions come to the fore: (1) Will this decision change SEC enforcement practices, which today invite corporate executives to purchase immunity for themselves with their shareholders’ money?; and (2) Who is minding the store at the SEC so as to enable its litigators to shoot themselves in both feet? The positions taken by the SEC’s staff in defending this settlement could haunt the SEC for years.
For the future, the SEC’s staff may hope that other judges will continue to rubber stamp their settlements in the time honored way. But it is difficult to put the genie back in the bottle. Judge Rakoff’s incisive opinion exposes a cozy, but “cynical relationship between the parties” under which “the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger . . . [while] the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators.”2 Such a settlement, he wrote, came not only at the expense of shareholders, “but also of the truth.”3
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