The government said Monday it has decided to go to trial against Bank of America Corp. a week after a judge's stinging rejection of its proposed $33 million civil settlement with the bank involving bonuses at Merrill Lynch.
The Securities and Exchange Commission said it will "vigorously pursue" its case against one of the biggest U.S. banks, which acquired Merrill in a hastily arranged deal. The agency had accused Bank of America of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses.
The SEC has been weighing its options since the judge called the settlement a breach of "justice and morality" and ordered the case to trial. Another route would have been to renegotiate the accord with Bank of America.
"We firmly believe that the settlement we submitted to the court was reasonable, appropriate and in the public interest," the SEC said in a statement issued Monday night. The agency had made that argument in briefs filed in recent weeks to U.S. District Judge Jed Rakoff. Bank of America also had defended the settlement as appropriate.
Rakoff had questioned why individual executives at Charlotte, N.C.-based Bank of America weren't charged by the SEC. His unprecedented rejection of the settlement put the SEC in a touchy legal situation. The agency on Monday notified the federal court in Manhattan, where Rakoff issued his ruling a week earlier, that it had decided to proceed to trial in the case.
"As we consider our legal options with respect to the court's ruling, we will vigorously pursue our charges against Bank of America and take steps to prove our case in court," the SEC statement said. "We will use the additional discovery available in the litigation to further pursue the facts and determine whether to seek the court's permission to bring additional charges in this case. In deciding how to proceed we will, as always, be guided by what the facts warrant and the law permits."
Bank of America agreed to pay the $33 million in the settlement without admitting or denying wrongdoing. The bank has said it didn't violate disclosure rules but wished to avoid litigation with the SEC at a time of market uncertainty.
Rakoff, in his ruling, found that the settlement "suggests a rather cynical relationship between the parties."
"The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth," he wrote.
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