This week we learned help may be on the way for shareholders and the public. Judges and Congress aren't going to stand for companies that hide critical facts from investors about billions of dollars. Smart executives are paying attention.
Judge Jed S. Rakoff of New York is my idea of a true American hero. This week he had the guts to ridicule the sham $33 million settlement put forth by the bungling SEC and the invisible executives of Bank of America.
He stated the obvious. That there was something bizarre about paying a mere $33 million for swiping $3.6 billion in taxpayer bailout funds slipped under the table to Merrill Lynch executives, calling the 1 percent fine "strangely askew."
To review: As Merrill melted down last year, BofA came to the rescue with taxpayer cash, but hid some cards. Executives at the bank decided shareholders didn't need to know they were tossing golden bones to the Merrill flunkies on the eve of the December 5, 2008 shareholder vote approving the merger.
Federal law requires companies to disclose "market moving" information to investors. Silly question: since when was a secret $3.6 billion payoff (the original amount was up to $5.8 billion) not market moving information?
Attorneys for BofA don't believe the bank -- or its executives -- violated the law.
And why should they? The good old SEC, which has proven itself utterly unequipped to stop corporate fraud in this century -- Bernie Madoff, anyone? -- didn't even make the bank admit wrongdoing. Nor did it have to say sorry to taxpayers for grabbing billions that might have paid for roads, health care or schools. Or arrange for the Merill Marauders to give the ill-gotten gains back.
"When this settlement first came to me, it seemed to be lacking, for a better word, transparency," said Judge Rakoff. He's not alone: Congress has called for hearings.
But maybe Congress and the judge are looking at it the wrong way. If you think of BofA and the SEC as part of Danny Ocean's gang in the heist flick Ocean's 11, this was a beautiful Flimflam.
Trick shareholders into thinking there are no golden parachutes. Strong-arm the SEC into arranging a fine of less than 1 percent of "the take" and it's a beautiful piece of work. That's a pretty good one-two punch: Grab the cash and then minimize the punishment.
As an investment -- by the numbers alone -- this was pretty darn impressive. In Ocean's 11, Danny and his crew had to put up several million to pull off a $150 million heist from the vaults of Vegas casinos. But that was a movie about a heist. This is the big-time, a gigantic Flimflam. And it's real money taken from your pocket.
Here all the Charlottans from North Carolina had to do was throw away the reputation of a 105-year old bank for good.
Not do the honorable thing and tell shareholders the facts: that the merger was built on a wicked premise -- the greedy executives who destroyed Merill must be showered with wealth.
Here's why I think this decent judge may turn this debacle into a powerful morality lesson for executives everywhere. He's not buying this sleight of hand. He doesn't believe that CEO Ken Lewis and John Thain, Merill's deposed chieftain, were ignorant of these machinations.
The judge wants the SEC to name who is to blame for this failure of disclosure -- for raiding our taxpayer vaults.
He isn't going to stop until that agency gives up a name. Said Judge Rakoff: "Was it some sort of ghost or a human being?"
It's a great lesson in business ethics and transparency. Corporate Flimflams will never be the same.
Jonathan Littman is the co-author of the new book I HATE PEOPLE! (Little, Brown and Company; June 2009) with Marc Hershon. A Contributing Editor at Playboy, Jonathan is the co-author of the best selling Art of Innovation.
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