Bank of America tried to shield itself but instead tripped on its own sword.
The SEC, which had previously worked out a settlement with BofA that Judge Jed Rakoff puked all over, last summer charged BofA with misleading investors about the amount and structure of discretionary executive bonuses to be paid to Merrill Lynch employees.
The crux of the complaint was disclosure violations around $5.8 billion in bonus payments BofA had committed to pay but failed to disclose – the payments were actually on an disclosure letter exchanged by the parties and referred to in the merger agreement but not included in the filing.
After the jump, the healthy dose of irony (and the namecalling).
In the proxy statement, BofA specifically states:
“Neither Bank of America nor Merrill Lynch has authorized anyone to give any information or make any representation about the merger or our companies that is different from [that which is contained or incorporated into the document]. Therefore, if someone does give you information of this sort, you should not rely on it.”
And they really meant it. The warning was repeated with additional emphasis and explanation on the back of the proxy.
Pretty standard disclaimer, right? Parties to proxy statements want to ensure that the only disclosure relied upon is that which has been vetted ad nauseum by the discloser and its counsel.
So you can imagine how Judge Rakoff reacted to the bank’s argument that even though the recipients were told not to rely on anything outside the proxy materials, they really should have known there were significant payments to be made, because it was all over the media.
Remember, he already said that the victims of the alleged fraud shouldn’t have to pay for it, when he rejected the first settlement between BofA and the SEC.
Trying to have their cake and eat it, too, certainly wasn’t going to fly.
We would love to have been a fly on the wall in that strategy discussion. Was Wachtell even asked, or did Paul Weiss just decide to throw them under the bus? This is certainly one more reason Wachtell and Paul Weiss aren’t going to be exchanging Valentine’s cards this year. For that matter, how is that the best argument Paul Weiss could come up with? Ignore the legend, because it’s all “part of the mix” of information? Huh?
Actually, our favorite part is Radoff’s own description of BofA’s argument:
“In effect, the Bank is arguing that, even though it expressly warned its shareholders to disregard the media, it can now defend itself by asserting that a reasonable shareholder would have disregarded these warnings, and by consulting the media, perceived that the Bank’s alleged lies were immaterial. Even a zealous advocate might perceive that such an argument hints at hypocrisy.”
Denied, obviously.
And one more thing – WTF is Paul Weiss thinking? Are they trying to put us all out of jobs by saying that no one reads the proxy materials anyway? It’s not much of a leap from there to just skipping the legal fees on the drafting and saving it for litigation.
The only thing that is certain is that this circus continues to be a source of entertainment for those people that believe corporations should be held accountable for their actions. Unfortunately for the Bank of America, Judge Jed S. Rakoff seems to be one of those people.
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Judge Rakoff knows how to cut through the BS.
Judge Rakoff knows how to cut through the BS.