Judge in Merrill Bonus Case Asks: Should Lawyers Be Responsible?
The federal judge who wanted to know more about why shareholders weren’t told of a plan to pay bonuses to Merrill Lynch executives isn’t satisfied with the answers.
On Tuesday, U.S. District Judge Jed Rakoff asked the Securities and Exchange Commission for a better explanation why executives, and possibly lawyers, aren’t in the SEC’s targets. Several publications covered the order, including the New York Times, the Wall Street Journal (sub. req.), the Am Law Litigation Daily, the Washington Post, the Associated Press and Reuters.
Absent additional information, Rakoff has said he won’t approve an agreement by Bank of America to pay $33 million to settle SEC allegations that the bank misled investors about plans to pay bonuses when acquiring Merrill.
An SEC brief says the bonuses weren’t disclosed in a proxy statement because of advice by lawyers at Wachtell, Lipton, Rosen & Katz, who represented Bank of America, and Shearman & Sterling, who represented Merrill. Since the lawyers’ advice is protected from disclosure by attorney-client privilege, the SEC said, it can’t investigate executives’ culpability.
Rakoff questioned whether Bank of America executives had waived the attorney-client privilege by asserting they had relied on advice of counsel. He noted the SEC stance that no waiver occurred. “If the SEC is right in this assertion, 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,” he wrote in his order (PDF posted by Law.com).
“This seems so at war with common sense,” Rakoff continued. ”It also leaves open the question of whether, if it was actually the lawyers who made the decisions that resulted in a false (disclosure) statement, they should be held legally responsible.”
Related coverage:
New York Times: “Plain Talk From Judge Weighing Merrill Case”
