Judge Rakoff issued a 15 page opinion approving the settlement between the SEC and BofA.  We predicted that he would.

His main concern, as it had been all along, was with the failure to charge the individuals responsible for any false disclosure.  He essentially found that the omitted information (on the bonuses to Merrill employees and the broker's large losses) were material.  As he stated:

• Despite the Bank’s somewhat coy refusal to concede the materiality of these nondisclosures, it seems obvious that a prudent Bank shareholder, if informed of the aforementioned facts, would have thought twice about approving the merger or might have sought its renegotiation.

But when it came to assigning blame to specific officials inside the company or lawyers on the outside, he was in a tough bind.  First, the materials provided by the Commission on why the agency chose not to charge individuals were convincing enough.  The Commission submitted a memorandum that discussed in some detail the role played by the assorted parties in the process.  While one can argue over the conclusions reached, a clear finger of blame did not point to any single person. 

Moreover, Judge Rakoff used different accusations by the Attorney General of New York (who is charging individuals in the case) to show that there was in fact a different interpretation that could arise from the same facts.  Yet the language quoted from state officials was full of hyperbole (that “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth”) rather than legal analysis. 

Indeed, in the one instance where the Judge made findings over the disparate positions taken by the two regulators (over the dismissal of the general counsel of Bank of America), he sided with the position taken by the SEC ("Upon review of the underlying materials provided by the parties here and by the Attorney General, the Court concludes that none of the evidence directly contradicts the Bank’s assertion that [the general counsel's] termination was unrelated to the nondisclosures or to his increasing knowledge of Merrill’s losses.").  

There was a more fundamental issue here.  Other than perhaps require some modifications to the governance provisions (which he did), or seek a bigger penalty (as he described, "it is still very modest in light of the fact that it now covers both cases"), there was little to be gained by not approving the settlement.  The Judge could not force the SEC to bring actions against individuals so causing the matter to go to trial would not have changed that.  

In the end, his refusal to approve the first settlement resulted in a much improved second settlement.  It may not be perfect but all things considered it is a good one.  

The judge's opinion is posted on the DU Corporate Governance web site.