The Securities and Exchange Commission’s bid to nail Bank of America for hiding massive losses at Merrill Lynch heated up yesterday when the agency said it wanted a jury trial.
In a filing in Manhattan federal court, the SEC said it “demands trial by jury,” which means taxpayers, who have sunk $45 billion into the troubled bank, will be deciding whether BofA misled investors about the severity of the red ink at Merrill in order to push the merger through.
Meanwhile, the trial date for BofA and the SEC to meet was pushed back to March. The court also ruled that the SEC has until Oct. 19 to amend its pleadings or add additional parties without needing the court’s permission. After that date, the agency can still make changes, though they’ll have to be approved by the court.
One observer called the SEC’s decision to call for a jury trial “brilliant,” noting that a “jury will be so more favorably inclined toward the SEC than the bank and [BofA CEO] Ken Lewis.”
Indeed, given the public’s frustration with massive bonuses on Wall Street and the sentiment that banks have benefited nicely from bailouts while consumers continue to struggle during the recession could make a jury less forgiving toward BofA.
However, some suggest the SEC’s move was less about tapping into public anger than it was about avoiding the ire of US District Court Judge Jed Rakoff, who’s hearing the case.
The SEC accused BofA of lying to shareholders about hefty bonus payments ahead of its merger with Merrill, and then agreed to settle the case for $33 million.
Rakoff refused to approve the settlement calling the arguments supporting it “puzzling,” “vague” and “so at war with common sense.” He called the settlement amount “trivial,” noting the fine would hurt BofA shareholders a second time.
New York lawyer Brad Simon suggested the SEC’s decision had more to do with the SEC lawyers’ fear of going up against Rakoff again.
“There was no way they were going to opt for a bench trial with this judge in light of the ruling that he made totally eviscerating their attempt to settle,” he said.