Bank of America, S.E.C. Under Fire

The nixed $33 billion settlement agreement between Bank of America and the S.E.C. on Monday has bloggers asking if a new era of corporate regulation has arrived.

Bank of America's proposed $33 million dollar settlement with the Securities and Exchange Commission to pave over a bonus scandal at Merrill Lynch received a decisive rejection in court Monday. Many pundits broke into cheers, applauding the decision as a strong blow on behalf of the "little guys" who are tired of seeing bank misdeeds go unpunished. But others believe the decision could backfire, hurting shareholders and victims even more in the end.

• We Win! exclaim several bloggers. Ranging from disgruntled Bank of America customers to general anti-establishment types, the bloggers are united in their thinking that the judge did the correct and morally defensible thing for the benefit of the American people. u235 articulates the popular sentiment: "Anyway it's a good day for me. Score one for the little guys! Thank you judge Rakoff, it's nice to have someone sticking up for us for a change."

• Shareholders Win  The Wall Street Journal's Michael Corkery applauds Rakoff for defending Bank of America's shareholders from the machinations of the SEC and the company's own executives. His predictions for the future of the nation's largest bank are grim: "At the very least, there will be a trial on the civil charges against BofA, which Rakoff has scheduled for Feb. 1. That means another treasure trove of emails between company executives will be unearthed and BofA is in for another public airing of an ugly chapter in the bank’s history that just won’t end."

• Actually, Shareholders Lose  Douglas A. McIntyre of 24/7 Wall St. is vocally dismayed, not so much with Rakoff's decision in this case as with the precedent it sets, which appears to have the most deleterious effect on the very people victimized in the first place. In reference to taking the parties to trial, he writes: "The trend will still cost shareholders plenty. All those new legal fees spent in defense of  bad behavior will come out of their pockets.The shareholders who have the least to say get a beating again."

• Litigation Loses  McIntyre isn't the only one who thinks the outcome is actually detrimental. Maintaining that the parties are unlikely to go to trial as the judge has advised, David Zaring of the Conglomerate is irate: "Parsing deals like Rakoff is doing here does no one any good. Even if he just wants to change the fine and get more disclosures out of it all. I prefer our litigant-driven system of justice to what they have in, you know, France."

• Hidden Culprits  Rolfe Winkler at Reuters Blogs is receptive to the decision, glad to see someone pushing the S.E.C. to be more aggressive. However, in contrast to Zaring, he believes that the matter is still likely to go trial given the fact that Bank of America's management is being especially tight-lipped: "The parties could come back with a settlement more to Rakoff’s liking. But presumably that would have to involve naming names. Who were the executives responsible for misleading shareholders? B of A has refused to answer that question and the S.E.C. seems to think it doesn’t have the leverage to force it out of them."

• Investigate the SEC advises Thomas O. Gorman at his S.E.C. Actions blog. He thinks the case "calls for a swift and complete evaluation not just of the Enforcement Division and its program, but of the Commissioners who are the S.E.C., the predicate for their decision and the direction in which they are taking the agency."

• The Importance of Being Earnest  Dealbreaker's Greg Michaels is amused by the honorable Rakoff's reference to infamous Victorian-era poet Oscar Wilde, and credits the judge for making a statement against corporate impropriety with the ruling. But he is not so bowled over to avoid deploying an acerbic witticism of his own: "If the S.E.C. is going to seal the deal they need to understand the new landscape. Shareholders don't pay for this sort of impropriety; multi-billion dollar taxpayer-funded bailout money does."

Updated, Sept. 16, 3:20 p.m. Reuters reports that New York Attorney General Andrew Cuomo has issued subpoenas to five current or former Bank of America directors today, in conjunction with their roles in the Merrill Lynch merger/bonuses scandal.