Who Does the SEC Protect?

"The [SEC] is in the hot seat again. ... With the SEC taking the heat, the other government agencies involved in the melee over the BofA-Merrill merger--the [Fed] and the Treasury--must be breathing a sigh of relief. For now, at least. ... According to the SEC, BofA executives told the agency that they supplied the Fed and Treasury with a financial document that included an expected incentive compensation payout of $3.37 billion to Merrill executives. This document was circulated at a meeting in December 2008 during which BofA exectives and federal officials met to discuss the unexpectedly large fourth-quarter losses at Merrill. ... This revelation, buried in the SEC legal brief, is the first mention that Treasury and the Fed were made aware of the Merrill bonuses before they approved federal assistance for BofA", my emphasis, Michael Corkery at the WSJ, 26 August 2009, link: http://blogs.wsj.com/deals/2009/08/25/bofa-to-sec-fed-and-treasury-knew-about-merrill-bonuses/

"Federal judge Jed. S. Rakoff fired a new shot in his challenge to a $33 million settlement by [BofA] over investor disclosures, saying the government's justification for letting individual executives off the hook is 'at war with common sense.' ... The SEC has said it couldn't investigate individual executives' culpability because they said they relied on lawyers' advice. Unless the executives waived their right to keep the advice private, the SEC said it would face 'substantial obstacles" to building a case. ... 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.' He said if the company insists on attorney-client privilege, there is no way to test the assertion and determine whether executives or their lawyers were culpable", my emphasis, Jess Bravin at the WSJ, 26 August 2009, link: http://online.wsj.com/article/SB125123100930658077.html.

"A federal judge told the [SEC] on Tuesday to give a better explanation of why it had agreed to a settlement with [BofA] over bonus disclosures without pressing the bank's executives harder. ... Responding swiftly, the judge questioned why the SEC did not insist that [BofA] waive attorney-client privilege before striking a $33 million settlement. He also questioned whether bank executives--or the outside lawyers--should be charged in the case. ... 'It is extremely unsual for a judge to want to look under the bonnet,' said George B. Newhouse Jr., a former prosecutor and now a partner at Brown, White & Newhouse, a law firm in Los Angeles", Louise Story at the NYT, 26 August 2009, link: http://www.nytimes.com/2009/08/26/business/26bank.html.

The Fed and Treasury knew before the BofA-Merrill merger. Amazing.

If the SEC's legal staff is so weak, it is unaware of the "crime-fraud" exception to lawyer-client privilege and that the "advice of counsel" defense will not dismiss a criminal indictment, Mary Schapiro should fire her legal staff. Eric Holder, what say you? Isn't "advice of counsel" a defense an accused can raise to show he lacked mens rea? Since it is no element of a crime, it will not dismiss an indictment, correct? The SEC pursues civil actions and thinks the "advice of counsel" defense prohibits its investigating the BofA-Merrill deal. Who is the SEC kidding? Good show judge Rakoff. Keep these rulings coming.

It is unusual Newhouse. Unfortunately. Did the SEC protect some New York BigLaws in return for seven-figure jobs in 2-3 years for some SEC staff attorneys? Or to protect Zimbabwe Ben? Or Hank "fomerly of Goldman Sachs" Paulson? Stay tuned.