U.S. District Judge Jed S. Rakoff rejected the SEC's proposal of a $33 million settlement with Bank of America. The SEC charged that Bank of America shareholders were misled by a proxy statement into believing that Merrill Lynch employees would not receive bonuses. The judge said the proposal was unfair and asked the SEC to explain why it charged the company and not individuals.
In its defense, the SEC said the proxy was written by lawyers, not executives, and that it was trying to soften the burden of a penalty which would ultimately rest on shareholders. But the judge's decision calls into question the practice of settlement at the SEC, which resolves 90% of its cases in this manner. By settling financial cases, the SEC deters other companies from wrongdoing while allowing the companies under investigation to escape the scrutiny and expense of a courtoom.
"They were hoping to slip a quick and dirty settlement past the judge and got called on it," Peter Henning, a professor of law at Wayne State University Law School in Detroit, told the Wall Street Journal.
The settlement caught the attention of a House Oversight Committee, which has asked SEC Chairman Mary Schapiro to testify about it later this month.
Read more at the Wall Street Journal.