Punishing the Victims
I am sure that most of you have some passing familiarity with the dispute surrounding the bonus compensation of Merrill executives just prior to its sale to Bank of America. The claim was that Merrill had intended to pay its executives 5.8 billion dollars, 12% of the purchase price that Bank of America agreed to pay for Merrill, and that Bank of America executives knew this fact and withheld it from shareholders in order to receive consent to the purchase.
Other than some passing knowledge of an SEC suit and some unflattering comments by media commentators concerning the fact that the court had failed to permit an agreed settlement, I knew very little until a friend sent me a copy of the Court’s opinion refusing to accept the settlement.
The first thing that strikes you about this is the style of the case—SEC v Bank of America. I am no expert on SEC law but it was curious that the SEC would sue the Company for allegedly deceiving itself. A review of the opinion quickly reveals the simple logic for the judge’s decision—we should not be punishing the victims.
The complaint alleges that various officers of Bank of America knew of the bonus arrangement but failed to disclose it to obtain shareholder consent. The settlement the judge noted was to have Bank of America, ultimately the shareholders, pay a 33 million dollar fine for having been duped. Needless to say the judge found this resolution unsatisfactory.
What follows in the case is then a series of explanations of why the actual alleged offenders could not be liable. The executives were not responsible because they relied on the lawyers, the lawyers were not responsible—well you read it. It does contain much of the confusion and contradictions that one finds in a Gilbert and Sullivan Operetta, without perhaps the happy ending.
The most curious is the explanation of why having the shareholders pay 33 million for having been defrauded was actually in their interest.
