SEC-BofA Settlement Receives Judge’s Approval

A long-brewing regulatory conflict ended today as a U.S. District Judge approved Bank of America’s (BofA) $150 million settlement with the Securities and Exchange Commission (SEC).

However, the decision was made with criticism, as Judge Jed Rakoff wrote:  “Given the somewhat tortured background of these cases and the difficulties the motion presents, the Court is tempted to quote the great American philosopher Yogi Berra: ‘I wish I had an answer to that because I’m getting tired of answering that question.’  However, after full consideration, the Court reluctantly grants the motion”

The settlement encompasses two cases brought against BofA by the regulator. The first, which was set to go to trial in March, charged the bank with misleading investors over $5.8 billion in bonuses paid to Merrill Lynch executives before its acquisition by BofA (see “SEC Charges BofA $33M for Violations Related to Merrill Deal”). The second alleged that BofA failed to disclose extraordinary financial losses (ultimately amounting to a net loss of $15.3 billion) at Merrill Lynch prior to a shareholder vote to approve the merger (see “SEC Files another Suit against BofA”). The SEC had wanted to amend the original compliant, but Rakoff had determined the SEC had to file a separate lawsuit (see “Judge Rejects New SEC Claims against BofA”).

In his opinion, Rakoff stated the bank had failed to adequately disclose the scope of Merrill’s losses and its authorization that Merrill could pay the billions of dollars in bonuses prior to a shareholder vote on the merger. “Despite the bank’s somewhat coy refusal to concede the materiality of these nondisclosures, it seems obvious that a prudent bank shareholder, if informed of the aforementioned facts, would have thought twice about approving the merger or might have sought its renegotiation,” he said.

However, he did begrudgingly approve the settlement. “In short, the proposed settlement, while considerably improved over the vacuous proposal made last August in connection with the Undisclosed Bonuses case, is far from ideal… While better than nothing, this is half-baked justice at best” Rakoff said.

In September, Rakoff had rejected a proposed $33 million settlement between the SEC and BofA over bonuses paid by Merrill Lynch, (see “It’s a No-Go for BofA Settlement with SEC“)

The settlement approval requires both sides to meet changes agreed upon today by February 25.

Rakoff’s decision can be found here.

Global Mutual Funds Make Turnaround in 2009

Equity/mixed, bond, and other long-term mutual funds around the world captured $900 billion in net flows during 2009, according to Strategic Insight (SI), an Asset International company.

That represents a remarkable turnaround from 2008’s $700 billion in net redemptions, SI noted.

The U.S. led the way with inflows of $503 billion for the year, followed by international cross-border funds in Luxembourg/Dublin, as well as offshore funds domiciled in Cayman Islands, British Virgin Islands, Bermuda, etc., with $211 billion in net inflows. Funds in Europe posted a $102 billion inflow, while Asia saw a $55 billion infusion into long-term funds.

While bond funds were the hot ticket in the U.S. ($424 billion), the international cross-border and offshore market saw most of its inflows in equity funds ($108 billion).

According to SI’s data, money market funds experienced net redemptions globally in 2009. The U.S. posted a $524 billion net outflow from money market funds, while Europe posted a $93 billion net outflow. Asia saw a $3 billion boost to money market funds for the year.

SI said that starting in January, its Global Mutual Fund FlowWatch will include the markets of Belgium, the Netherlands, Austria, Portugal, Czech Republic, China, Singapore, Thailand, Malaysia, Indonesia, and the Philippines.


Information about the report is available at www.sionline.com.

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