Judge Rakoff Finds SEC Explanation of BofA Settlement “At War With Common Sense”

SEC230U.S. District Judge Jed Rakoff demanded still more information from the SEC today after receiving filings from the agency and Bank of America Corp. in support of their settlement of the SEC’s enforcement action.  The WSJ reports that Judge Rakoff ordered the SEC to explain why it didn’t pursue allegations that BofA executives lied in a proxy statement about bonuses for Merrill Lynch employees.

The SEC said in its filing yesterday that it couldn’t investigate the executives’ culpability because they said they had relied on advice from their lawyers, which was protected by the attorney-client privilege.

Judge Rakoff, however said that this explanation was

“at war with common sense.” If that were the regulator’s policy, “it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel, and, if the company does not waive the privilege, the assertion will never be tested, and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny.”

The WSJ reports that the court ordered the SEC and BofA to submit additional and final submissions by Sept. 9.

Read the WSJ article.