## Facts

- Bank of America sought shareholder approval for its December 2008 acquisition of Merrill Lynch.
- The SEC alleged Bank of America’s proxy materials materially misled shareholders about Merrill’s ability to pay 2008 year-end bonuses before closing.
- The proxy stated Merrill had agreed not to pay discretionary year-end bonuses to executives before closing without Bank of America’s consent.
- The SEC alleged Bank of America had separately agreed Merrill could pay up to $5.8 billion in discretionary bonuses before closing; Merrill paid about $3.6 billion in December 2008 just before closing.
- The SEC later alleged Bank of America also failed to disclose Merrill’s extraordinary losses in October and November 2008 before the shareholder vote.
- In August 2009, the SEC filed suit and proposed a consent judgment: Bank of America would pay a $33 million civil penalty (without admitting or denying allegations) and be enjoined from future proxy misstatements.
- In September 2009, the district court rejected the $33 million settlement and set the matter for trial.
- After further discovery (including waiver of privilege and an SEC Statement of Facts not contested by the Bank) and a second related SEC action, the SEC sought approval of a revised settlement resolving both matters.
- The revised proposal required a $150 million penalty and multi-year disclosure-control and corporate-governance undertakings, including independent review of disclosure controls, enhanced officer certifications, and compensation-governance measures.

## Issues

1. What standard governs judicial approval of an SEC-proposed consent judgment, and what showing is required to establish that it is fair, reasonable, adequate, and in the public interest?
2. Whether a consent judgment was improper where shareholders were the alleged victims yet would bear the financial penalty, the settlement lacked admissions, and the public record lacked an adequate factual basis.
3. Whether a revised settlement with a larger penalty, a developed factual record, shareholder-directed distribution, and substantial governance reforms satisfied the public-interest standard despite continued concerns about individual accountability.

## Decision

- The court rejected the initial $33 million consent judgment as not fair, reasonable, adequate, or in the public interest.
- The court emphasized that the proposed resolution effectively required shareholders to pay a penalty for alleged misstatements made to them, without a sufficient record explaining the penalty level or the absence of individual charges.
- After expanded discovery and a fuller factual record, the court approved (with required revisions) the revised consent judgment providing for a $150 million penalty and extensive remedial undertakings.
- The court accepted that routing penalty proceeds to harmed shareholders and imposing significant governance and disclosure reforms materially improved the settlement’s fairness and public-interest justification.
- The court approved the revised settlement while expressing reservations and stressing the limits of judicial review and deference to the agency’s enforcement choices.

## Legal Principles

- A court must independently assess whether a proposed SEC consent judgment is fair, reasonable, adequate, and in the public interest; it is not a ministerial “rubber stamp.”
- Where shareholders are the alleged victims, the public-interest inquiry may require particular attention to whether the settlement imposes costs on those shareholders without corresponding accountability or remedial benefit.
- A meaningful factual basis may be necessary to support approval of an enforcement settlement, especially when the relief appears misaligned with victim compensation or deterrence.
- Non-monetary remedial undertakings (e.g., disclosure-control enhancements, officer certifications, independent oversight, and governance reforms) can materially support a finding that a settlement serves the public interest.
- Courts may exercise restraint and grant approval where the settlement, viewed as a whole, reasonably addresses the alleged misconduct and provides concrete remedial and compensatory measures, even if the court disagrees with aspects of enforcement strategy.

## Conclusion

The court refused to approve an early SEC settlement that lacked an adequate factual foundation and appeared to penalize shareholders for management’s alleged disclosure violations, but later approved a substantially strengthened settlement supported by a developed record, increased monetary relief directed toward shareholders, and significant disclosure-control and corporate-governance reforms.


Securities & Exch. Comm’n v. Bank of Am. Corp., 653 F. Supp. 2d 507 (S.D.N.Y. 2009)