The Homa Files

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/

Apparently, the courts are asking the same question …  coincidence?

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WSJ, The BofA Bonus Show, Sept.4, 2009 

A judge is doing a public service by exposing what looks like a drive-by political shooting.

The SEC brought a civil lawsuit, alleging that BofA had misled investors by failing to disclose certian Merrill Lynch bonuses in the proxy documents it sent to shareholders in November, prior to the takeover vote. A beleaguered BofA in early August settled with the SEC for $33 million, neither admitting nor denying wrongdoing.

In pursuing BofA, the SEC’s broke with its policy of pursuing individuals, rather than companies, in cases of alleged fraud against investors. The SEC had adopted that policy under former SEC Chairman Christopher Cox for the sensible reason that fining a company essentially penalizes shareholders twice. “The same shareholders who were deceived in the first place” pay again out of the “corporate treasury.”  To add injury to insult, in this case the shareholders are also U.S. taxpayers, who have bailed out BofA to the tune of $45 billion.

The SEC’s defense is that it would be too difficult to go after BofA management, since individuals will claim their decisions were advised by corporate lawyers and are protected by attorney-client privilege. In other words, the SEC enforcement staff realizes it is easier to wrench a settlement out of a politically vulnerable company than it is to build a case against the responsible individuals.

The judge declared the SEC’s decision to go after BofA shareholders rather than individuals “at war with common sense” and has refused to endorse it.

How this kind of enforcement deters fraud or helps investors is a mystery.

Full article:
http://online.wsj.com/article/SB10001424052970204731804574387044194076168.html?mod=djemEditorialPage

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This entry was posted on September 8, 2009 at 7:46 am and is filed under Stock Market. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.