* Rakoff questions if $150 mln accord addresses concerns
* Judge calls SEC, Cuomo view of case strikingly different
* Bank of America shares fall 3.5 pct
By Jonathan Stempel
NEW YORK, Feb 8 The federal judge who rejected
a U.S. government settlement with Bank of America Corp (BAC.N)
over its takeover of Merrill Lynch & Co questioned on Monday
whether a revised $150 million accord still unfairly punished
U.S. District Judge Jed Rakoff said he would decide by Feb.
19 whether to approve the revised accord, which also calls for
improvements in corporate governance and disclosure, including
on matters of executive pay.
Rakoff called these proposals on the whole "quite
positive," while asking whether the court should have a role in
hiring an independent pay consultant.
If approved, the settlement would resolve two lawsuits by
the Securities and Exchange Commission against the largest U.S.
bank over the Jan. 1, 2009, merger, including one suit
scheduled to go to trial on March 1.
Monday's hearing came four days after New York Attorney
General Andrew Cuomo filed civil fraud charges against the
bank, former Chief Executive Kenneth Lewis and former Chief
Financial Officer Joe Price over the merger.
Cuomo alleged that the defendants misled shareholders about
Merrill's soaring losses ahead of a Dec. 5, 2008, shareholder
vote on the merger, and also misled the federal government so
that they could extract $20 billion of federal bailout money.
Rakoff in September rejected a $33 million accord as too
low, as unfair in that it would have forced shareholders to pay
a fine, and defective because it failed to hold any individual
executives, directors or lawyers responsible.
That rejection proved embarrassing for the SEC and for
Charlotte, North Carolina-based Bank of America, which agreed
to buy Merrill after less than 48 hours of talks, on the same
morning Lehman Brothers Holdings Inc LEHMQ.PK went bankrupt.
The latest agreement differs in that the $150 million would
be paid by the bank into a fund to be distributed to
shareholders, but Rakoff questioned whether that would satisfy
"Why should shareholders pay shareholders?" Rakoff asked.
"There's a circularity, at least in part, to this proposal."
George Canellos, regional director of the SEC's regional
office in New York, responded that the sum would compensate
shareholders who might have voted against the merger or
demanded a lower price had they known of Merrill's losses.
"I don't think there is any issue of victims paying
victims," he said.
The governance and disclosure changes would give
shareholders a voice on executive pay, imposing tighter rules
on directors who set such pay and posting incentive pay
practices prominently on the bank's website.
Rakoff said he will pose specific questions to both sides
by Feb. 11, with responses due by Feb. 16. Bank of America
spokesman Bob Stickler said the bank will respond promptly to
the questions, and looks forward to a "rapid resolution."
ROLE OF GENERAL COUNSEL
In its lawsuits, the SEC accused the bank of hiding
Merrill's mounting fourth-quarter 2008 losses, and misleading
shareholders about the $3.6 billion of bonuses it let Merrill
pay in 2008. The quarterly loss ultimately totaled $15.8
Rakoff noted that the charges were "strikingly different"
from Cuomo's, pointing out the attorney general's allegation
that Bank of America's conduct was "motivated by self-interest,
greed, hubris, and a palpable sense that the normal rules of
fair play did not apply."
Rakoff said he will review the events surrounding the
departure of general counsel Timothy Mayopoulos from Bank of
America, and the role of the bank's law firm Wachtell Lipton
Rosen & Katz LLP in deciding what to tell shareholders.
Cuomo alleged that Mayopoulos was fired on Dec. 10, 2008,
after having been misled about the scope of Merrill's losses,
and confronting Price following the Dec. 5 shareholder vote
about those losses.
Canellos suggested that the replacement of Mayopoulos as
general counsel by Brian Moynihan, now Bank of America's chief
executive, may have been motivated by "a bit of a fire drill"
at the bank to keep the latter from leaving the company.
He said the alternative would have been for Moynihan to be
replaced at the bank by Merrill's chief executive, John Thain.
The latter eventually left the bank, and was on Sunday named
chief executive of finance company CIT Group Inc (CIT.N).
Moynihan eventually gave up the general counsel job and
became head of consumer and small business banking, a position
now held by Price.
Bank of America shares closed down 52 cents, or 3.5
percent, at $14.48 on the New York Stock Exchange.
The federal cases are SEC v. Bank of America Corp, U.S.
District Court, Southern District of New York, Nos, 09-06829
and 10-00215. Cuomo's case is New York v. Bank of America Corp
et al, New York State Supreme Court, New York County, No.
(Additional reporting by Joe Rauch; Editing by Tim Dobbyn and