Sunday, May 27 , 2018, 4:16 pm | Fair 66º

 
 
 

Robert Scheer: Judge Sounds the Alarm on Bankers

In at least one court, those involved in yet another bonus scandal aren't being let off the hook

The good judge smelled a rat.

“Was there some sort of ghost that performed these actions?” U.S. District Judge Jed Rakoff demanded to know Monday in rejecting a deal that would let Bank of America off the hook in yet another banker bonus scandal.

Robert Scheer
Robert Scheer

The Securities and Exchange Commission had charged the bank with covering up outrageous bonuses given out at Merrill Lynch as the bank acquired the failed stock brokerage, and now it was letting the bank off the hook with a chicken-feed fine.

“Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?” Rakoff asked, and Lewis Liman, the lawyer for Bank of America, assured him they do: “My God! Bonuses on Wall Street? It is not a matter of surprise.”

But for those of us less sophisticated in the ways of Wall Street, it is a surprise that Merrill Lynch executives were rewarded for failure at the same time Bank of America was using $45 billion in taxpayer funds to take over the brokerage house. The 696 executives who helped run Merrill into the ground were granted more than a million bucks each.

Liman attempted to put an egalitarian spin on this government-sponsored welfare for the super-rich by pointing out that all told, another 39,000 Merrill employees averaged only $91,000 in bonuses, but Rakoff wasn’t having it: “I’m glad you think that $91,000 is not a lot of money; I wish the average American was making $91,000.”

That’s the point. The average American is paying for the banking debacle not only in taxes for the bailout but with lost jobs and homes. Yet the SEC, which is supposed to be protecting ordinary citizens’ interests, decided to give Bank of America execs a bye. The question is why Bank of America and Merrill failed to inform their shareholders that such payoffs were part of the deal. The details of the bonuses were known to Bank of America CEO Kenneth Lewis and other top bank executives, but were not mentioned in the merger agreement or proxy statements sent to the company’s shareholders for approval.

The SEC complaint did accuse Bank of America of misleading its shareholders, but instead of digging deeply into how such decisions had been made and by whom, a deal was concocted in which Bank of America got off with a paltry $33 million fine. That is less than the bonus received by one of the Merrill execs. Yet the SEC deal would have closed the case on how that decision was made.

“You filed a rather uninformative, bare-bones complaint,” Rakoff told SEC lawyer David Rosenfeld, who lamely defended the decision to avoid going after the bankers involved, and it is instructive of whose interest he was serving that “the lawyer for Bank of America periodically whispered what appeared to be suggestions to Mr. Rosenfeld,” as a New York Times article put it.

Whispering between government regulators and the Wall Street honchos ostensibly being regulated is what got us into this mess in the first place. The SEC looked the other way as the banking bandits piled on hundreds of billions in toxic holdings, and its lawyers evidently still do not get the message that they are not supposed to be facilitators of financial rip-offs.

Thankfully, at least one judge had the courage to challenge the rules of the game and delay its predictable outcome. “I would be less than candid if I didn’t express my continued misgivings about this settlement at this stage,” Rakoff said. “When this settlement first came to me, it seemed to be lacking, for lack of a better word, transparency. I did not know much about the facts from the complaint, I did not know much, or really anything, about the basis of the settlement.” He said that accepting the settlement “would leave uncertain the truth of the very serious allegations made” by the SEC and whether any of the bonus money was “derived directly or indirectly from the $20 billion” that Bank of America received from the government.

That is the only error Rakoff made — the figure is actually $45 billion in government bailout funds for Bank of America and $118 billion more in public money to guarantee its toxic assets. Given that enormous investment of taxpayer funds, and the trillions more put at risk because of the folly of those richly rewarded banking bonus babies, transparency would indeed seem to be required as the order of the day. As Rakoff concluded, Bank of America and Merrill Lynch had not only “effectively lied to their shareholders,” but the money to finance their bonus scam had come “from Uncle Sam.”

Why has it been left to one stellar judge to sound the alarm, and why are Congress and the Obama administration looking the other way?

TruthDig.com editor in chief Robert Scheer‘s new book is The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America. Click here for more information. He can be reached at .(JavaScript must be enabled to view this email address).

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