When two people pretend to be adversaries to commit fraud on a federal judge, a problem emerges: Keeping a bunch of lawyers "on message" ain't easy. The SEC and Bank of America lawyers are going to learn this lesson, as Judge Jed S. Rakoff is not going to like their latest ruse
Here's the short story: Bank of America signed a contract to merge with Merrill Lynch. BOA failed to disclose that the merger would cause BOA to face billions-of-dollars of losses; and require BOA to pay billions-of-dollars to the same morons at Merrill Lynch responsible for billions in losses. Under securities laws, an acquiring company is required to disclose material facts about a merger to its shareholders. Even post TARP, billions-of-dollars are material, right?
After public outrage, SEC fined Bank of America - the company - $33 million. Although individual corporate officers - people who make tens-of-millions each year to make executive decisions - made the decision to violate the law: Shareholders like you and me were required to pay the fine.
None of the people who made the decision to lie to shareholders were held personally responsible. The SEC has never explained why it let the people who commited the crime go free.
Judge Rakoff was furious, and justifiably so. Shouldn't the individuals who cased shareholders to lose billions be forced to pay the fine? BOA officials, including the CEO, get paid millions to make tough decisions. Those executives all said: "Don't blame us. We just did what our lawyers told us to do."
Judge Rakoff's response? "Fine. Tell me what your lawyers told you to do. Let me see if their advice was credible."
BOA and the SEC, in unison, responded: "Attorney-client privilege! BOA's lawyers won't talk. We at the SEC are powerless to make them talk."
Rakoff's answer: "I'll accept that. This doesn't mean I will rubber-stamp this scandalous agreement. Instead, here's what's up: BOA executives may not hide behind the advice-of-counsel defense. Own your decisions." Rakoff told the SEC: "Stop letting them hide behind advice of counsel."
He continued, "By the way, both of you need to file some respectable motions. Stat." So here we are.
Today in legal filings, the SEC and BOA forgot the simple narrative they had told Judge Rakoff. The lawyers from BOA and the SEC couldn't stay on message. Any lawyer who has drafted a brief via committee won't find that hard to believe. Hilarity ensued.
Unless you're Judge Rakoff - in which case your cheeks are reddened by the lies and contradictions. Word on the street is that you do not play Judge Rakoff for the dupe. Which is what BOA and the SEC are doing.
Bank of America, in today's legal filings, said:
[N]o Bank of America or Merrill Lynch witnesses told the SEC that they relied on the advice of counsel with respect to the matter at issue here.
Uh-oh. The SEC answers: Yes, they did:
Bank of America repeatedly has asserted the attorney-client privilege with respect to the production of documents and in regard to testimony or interview of witnesses in the course of the staff's investigation. Bank of America has consistently declined to waive the privilege... The Commission cannot compel a party to waive the privilege if it declines to do so, nor does the Commission believe it has a sound legal basis here to seek a court order to compel a waiver. Under applicable Second Circuit precedent, the assertion by a party in an investigative setting that they have relied on counsel, or that they may have a defense based on such reliance, generally does not constitute a waiver of the attorney-client privilege.
If I lived in N.Y., I'd take the day off work to be in Judge Rakoff's courtroom during the next BOA-SEC hearing.