Payment of damages has been earmarked to go only to prior Bank of America shareholders and to exclude prior Merrill Lynch shareholders and officers who now own Bank of America shares.

The Honorable Judge Jed S. Rakoff of Manhattan District was reluctant with his decision. He also believed that the general counsel for Bank of America may have been trying to blow the whistle on a cover-up, and that is why he was fired shortly after the proxy vote.

I believe this decision is the correct one and of an appropriate amount. The $30 million originally sought by the SEC was probably too puny, but $150 million is large enough amount to deter similar activity by other companies and to teach Bank of American's management a lesson. As I wrote in a previous post (KenLewis.htm), I believe Bank of America's shareholders would have approved the acquisition of Merrill Lynch even if they had been fully informed of the increased losses at Merrill Lynch at the end of 2008 and the bonus money set aside to pay Merrill employees. This is because Merrill Lynch was a good investment to Bank of America going forward after the current crisis. Already, strong performance at Merrill's investment banking unit was able to offset increasing credit card and commercial lending losses at Bank of America. Merrill has an extremely valuable franchise of investment advisors, which Ken Lewis referred to as the "thundering herd." Merrill's activities in investment banking complements lending and general banking activity of Bank of America and can serve to diversify risk during bad times as well as profit sources during good times.

Also as written in the related post, I do not believe Bank of America's general counsel was fired because he had been trying to blow the whistle on a cover-up. If anything, I believe the general counsel was the principal person responsible for the material omission. It is his job to make sure that the proxy statement to shareholders does not commit a securities fraud by omitting material information. The buck stops with him. No one else, not even Ken Lewis the CEO. I think he was fired because he screwed up.

It would have been practically impossible to hide the fact the the proxy statement was missing material information from the General Counsel. He is said to have been physically present at the Merrill bonus discussions, so he knew about that. He probably knew about the mounting losses as well. All he needs to do is read a copy of the proxy statement to know that those information were missing from the final document. His own trusted guys would have been staking out the printers as the proxy statements were being printed and carefully reading every word and checking all tables, footnotes, and exhibits. He would have been the first person to be notified of a material error. He had a legal obligation to report the illegal activity to the SEC if the other executives at Bank of America wanted to hide the information. Failing that, he should have resigned for cause. Bank of America has a legal obligation to report his resignation for cause to the SEC within 30 days (which would have been about a month before the shareholders' vote). The fact he did not do these things means he was actively involved in the omission, either by error or by intention. I think by intention, but that is my opinion.