Latest Legal News: In BofA Reality Show, It's Cuomo v. the SEC

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BofA: Who Is Stating the Facts, the Attorney General or the SEC?


Both New York Attorney General Andrew Cuomo and the Securities and Exchange Commission have sued Bank of America (BAC), but the "facts" each lays out in support of its suit differ sharply in legally important ways, as Judge Rakoff noted when discussing the SEC's revised settlement proposal yesterday.The judge called the versions "strikingly different," because Cuomo alleges that BofA executives rejected in-house and outside legal advice to disclose Merrill's massive and mounting losses, which would make BofA's fraud intentional, and the SEC's decision not to sue individual executives mystifying, as I noted in an earlier post. The SEC, by contrast, alleges in a "statement of facts" attached to its proposed settlement that internal and outside counsel together concluded that disclosure was unnecessary when Merrill's losses were believed to be $5 billion, and were then not told in a timely way as the losses skyrocketed to $15 billion. If BofA relied on wrong legal advice, the company's failure to disclose may be negligent but hardly seems intentionally deceptive, making charging the company -- but not the executives -- logical.

Under questioning by Judge Rakoff, the SEC essentially called Cuomo a liar, saying his version "didn't derive from any evidence." Judge Rakoff isn't going to take either side's word; he has asked for the underlying evidence. The judge will issue an order detailing his questions this Thursday, and then expects to rule on the settlement eight days later.

The question of which version is right -- intentionally deceptive executives or negligent company -- appears crucial to Judge Rakoff's decision to approve the SEC's proposed settlement. The judge rejected the first settlement proposal in large part because shareholders were being held accountable (through a company fine), but no executives were on the hook. If Judge Rakoff ultimately believes Cuomo's version of events, one the judge noted contained "very great detail," then I don't see how he could approve this settlement proposal. If he again rejects the settlement, a trial will start March 1.

Does It Matter if the Judge in the California Gay Marriage Case Is Gay?

In yesterday's post, I discussed recent empirical evidence that the race and gender of a judge can affect outcomes when the plaintiff is alleging racial or sexual harassment or discrimination.

Now it seems District Judge Vaughn Walker, who is hearing the landmark "Prop 8" trial that will determine if California's ban on gay marriage is unconstitutional under the U.S. Constitution, is gay. Does it matter?

If the question is: "Will being gay influence Judge Walker's decision making?" then the research I cited yesterday suggests the answer is maybe, perhaps probably. But the same research also shows that the party of the president that appointed the judge also influences how judges rule. This difference is usually justified as "elections have consequences." So one might also expect that the fact that Judge Walker is a Republican appointee (named by President George H. W. Bush) would influence his decisions. And armchair analysts might posit that the two factors, being Republican and being gay, would cut against each other.

If the question is: "Does being a Republican gay person, including any influence either factor may have, make Judge Walker's decisions in the gay marriage (or any other) case illegitimate?" then my answer is a resounding "No." The legitimacy of his opinions can only be assessed one way: The strength of the legal reasoning.
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