Corporate Governance

So what would happen next?  Litigation.  The only way for the truth to come out and the two sides to resolve very different characterizations of the same case.  As Judge Rakoff noted:

• Yet the truth may still emerge. The Bank of America states unequivocally that if the Court disapproves the Consent Judgment, it is prepared to litigate the charges. BofA Reply Mem. at 5. S.E.C., having brought the charges, presumably is not about to drop them. 

It is the right outcome.  When settlements occur, they invariably involve a statement that the guilty party neither admits nor denies the allegations.  The Commission, however, views these settlements as admissions of wrongdoing.  They do not expect parties to assert innocence once the settlement has been approved.  Sometimes they do and there is little the Commission can do except to ask to have the settlement vacated (which almost never happens). 

But when a party asserts innocence in advance, it makes the proposed settlement a charade.  In this case, when BofA made the first filing and professed innocence, the Commission should have immediately announced that the settlement was off and it would have litigated.  Such an approach would have avoided this opinion of the judge and would have added integrity to the settlement process.  Had Judge Rakoff approved the settlement, it would have looked like government coercion at its worst.  He was right to reject it.