There is much discussion about whether anything has changed in the culture of Wall Street in this period. Maybe it has, or maybe it hasn’t. But at least in Judge Jed Rakoff’s Manhattan courtroom today, something undeniably did.
Common sense received a well-deserved nod today in a landmark ruling from U.S. District Judge Jed S. Rakoff. The judge rejected the overly cozy settlement struck between the Securities and Exchange Commission and Bank of America. In making his ruling, he expressed skepticism that a public agency should allow shareholder money to be used to shield B of A’s management from more rigorous investigation over the Bank’s takeover of Merrill Lynch. The move was stunning in its departure from the way the courts normally handle SEC settlements.
As the judge astutely noted:
The S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, and the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators…. It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away.
As we said about this case here:
The settlement process between the SEC and securities issuers is part of the old way of doing business involving weak oversight and overly permissive regulation that helped to create the recent market debacle. Far from spurring accountability and transparency, which is generally regarded as a necessary part of financial reform, it allows companies to pay money out of shareholders’ pockets and evade any larger sense of responsibility for what they have done. In this charade, management knows it can try to get away with as much as possible and, if caught, has only to come up with a few million, which becomes another business expense. It is an easy way of creating the impression that the SEC is making progress toward reform and enforcement when it is nothing more than a mere slap on the wrist that perpetuates the culture of always skating close to the edge of the law. That is a culture that needs to change dramatically if the lessons from the market’s meltdown and credit collapse mean anything.
The decision is a poetic present as Wall Street and a still-reeling, bailout-fatigued economy celebrate the first-year anniversary of the collapse of Lehman Brothers and the dramatic weekend that saw the forced Bank of America – Merrill Lynch deal.
There is much discussion about whether anything has changed in the culture of Wall Street in this period. Maybe it has, or maybe it hasn’t. But at least in a federal building in Manhattan today, something undeniably did. Common sense was a rare witness in the courtroom. Judge Rakoff preferred her testimony.
An investing public who should more than ever be interested in the truth and in the morality of how business is run should feel grateful and a little more relieved today.