Judge Rakoff Must Approve Merrill's $315M MBS Deal
Bank of America's Merrill Lynch brokerage unit has announced on December 5, 2011 that it had reached a $315 million agreement with the Public Employees Retirement System of Mississippi pension fund, which will settle all claims that it misled them about the risks associated with the investments in mortgage backed securities (MBS), according to Reuters. If approved, this will be one of the biggest settlements reached related to MBS, which were marketed and sold as being safe, liquid investment products that plummeted in value with the collapse of the housing market due to their concentration in risky mortgage debt. The settlement gets rid of the claims that Merrill misled investors about the risks of $16.5 million worth of MBS in 18 offerings between 2006 and 2007 and prior to being taken over by Bank of America in 2009. Bank of America (Merrill) did not admit or deny any wrongdoings.
The approval of the deal must come from Judge Jed S. Rakoff in the U.S. District Court in Manhattan, who just rejected a settlement of $285 million between Citigroup and the SEC, primarily because the firm did not admit or deny any wrongdoings in reaching the settlement. His scathing opinion attacked the long standing, cozy relationship between the SEC and the Wall Street firms, which allowed firms to settle disputes more or less as a cost of doing business without having to admit or deny any wrongdoings. In his opinion he elaborated that it was impossible to know if a settlement was a fair, reasonable settlement in the best interest of the public without knowing all of the proven details and facts. In rejecting the settlement, Judge Rakoff ordered the parties to be ready for trial in June 2012. In the meantime, the parties could attempt to hammer out another deal that would be viewed differently and approved by the court. It is unclear if the judge will look at the Merrill Lynch settlement differently, since it resolves differences between two parties in private litigation and does not involve the U.S. Securities and Exchange Commission (SEC) or other regulatory bodies.
The case is reported as Public Employees' Retirement System of Mississippi, et al v. Merrill Lynch & Company, et al; in the U.S. District Court, Southern District of New York; Number 08-10841.
The case is Public Employees' Retirement System of Mississippi et al v. Merrill Lynch & Co et al, U.S. District Court, Southern District of New York, No. 08-10841.