An irony of SEC fines … double jeopardy for shareholders ?

The story

Gotcha: “B of A to pay $33M fine over Merrill bonuses”

On August 3,  the Securities and Exchange Commission filed charges  against Bank of America for misleading investors about billions of dollars in bonuses paid to top executives at Merrill Lynch following its purchase of the brokerage giant.

The SEC simultaneously announced that it would settle with the Charlotte, N.C.-based lender, who will pay a penalty of $33 million as a result.

Regulators alleged that Bank of America failed to disclose plans to as much as $5.8 billion in bonuses for fiscal year 2008 in its proxy statement. Instead, Bank of America told shareholders that Merrill had agreed not to pay year-end performance bonuses, according to the SEC.

“Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” Robert Khuzami, Director of the SEC’s division of enforcement, said in a statement.

http://money.cnn.com/2009/08/03/news/companies/bank_of_america_sec/index.htm?postversion=2009080315

The Question 

Who really pays fines imposed by the SEC?

Think about it …

B of A misleads shareholders by failing to disclose material information.

Shareholders lose money as B of A stock drops.

SEC fines B of A for misleading shareholders.

B of A pays a fine to the SEC.

Where did the fine’s funds come from?

You guessed it, shareholder’s equity.

So, in the final analysis, shareholders pay a fine for having been mislead.

… and I thought double jeopardy was illegal.

Hmmm.

Note: This one is even more interesting since taxpayers own a chunk of B of A.

So, taxpayers are paying a fine to themselves.

Our government at work …

 

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3 Responses to “An irony of SEC fines … double jeopardy for shareholders ?”

  1. TK Says:

    This should be a doubly efficient way to incent shareholders to control compensation. Better than having the government do it, no?

  2. Follow-up: An irony of SEC fines … double jeopardy for shareholders ? « The Homa Files Says:

    […] Follow-up: An irony of SEC fines … double jeopardy for shareholders ? By kenhoma In an Aug. 26 post, we raised the question of whether it was double jeopardy for shareholders if the SEC to fines a company for misleading or defrauding its shareholders. https://kenhoma.wordpress.com/2009/08/26/an-irony-of-sec-fines-double-jeopardy-for-shareholders/ […]

  3. Justice prevails … B of A shareholders shielded from double-jeopardy « The Homa Files Says:

    […] In an Aug. 26 post, HomaFiles asked whether it was double jeopardy for shareholders if the SEC to fines a company for misleading or defrauding its shareholders. https://kenhoma.wordpress.com/2009/08/26/an-irony-of-sec-fines-double-jeopardy-for-shareholders/ […]

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