PhillyDeals: A grudging sign-off on Bank of America-SEC settlement

Federal Judge Jed Rakoff ordered Bank of America Corp. yesterday to pay shareholders $150 million for hiding billions in losses and executive bonuses in its 2008 Merrill Lynch deal, but did so with reluctance.

Rakoff's decision approved a deal between the Securities and Exchange Commission and the bank - a deal he termed "half-baked justice at best."

If "prudent" investors knew what bankers knew about all the billions flying out of Merrill, they "would have thought twice about approving the merger," Rakoff wrote. It would have been "a bank-destroying disaster if the U.S. taxpayer had not saved the day." (BofA is repaying taxpayers, with interest.)

The SEC, which brought the case, blamed "negligence" by BofA, its bosses, and its lawyers, who decided what not to tell the investors who

voted on the deal, "on a piecemeal basis," using "inadequate" data.

Mere negligence? New York Atty. General Andrew Cuomo gives the actions of Ken Lewis, then the Bank of America chief executive, what Rakoff called "a more sinister interpretation," accusing Lewis of "massive fraud and manipulation" based on "greed."

Rakoff looked at Cuomo's notes, which detail, for example, how Bank of America, in mid-crisis, threw out a perfectly good general counsel, Timothy Mayopoulos, because another banker, Brian Moynihan, wanted the job. Moynihan is now BofA's chief executive.

But the judge, sifting Cuomo's facts, found too little to prove the bankers were "purposely fraudulent."

So he said he had no choice but to accept the SEC's finding of negligence by the company, and leave it to Cuomo to nail Lewis in state court, if he can.

Rakoff had rejected as inadequate an earlier SEC deal for the bank to pay $33 million. This time he accepted a $150-million penalty, payable to nonexecutive investors who owned the stock at the time of the deal. It works out to just pennies per share.

Why? Because BofA shareholders, the victims, are paying the fine themselves. That's "far from ideal." But Rakoff says the SEC, in not accusing Lewis or other individuals of wrongdoing, gave no room to demand they pay, too. Leaving Rakoff, in the judicial third person, "shaking his head." And signing.

"We are very pleased with the deal," BofA spokesman Robert Stickler told me.

Joe Nestory lives in Cherry Hill's Barclay section. He's got a Shore house. He's got investments. But he likes ready cash, when banks make it easy.

Back in 2006 he had a line of credit with Commerce Bank, but when JPMorgan Chase & Co. made an "unsolicited pitch" offering more money for less interest, 1 percent below prime, "I went with Chase," Nestory said.

While he could. "In 2006, Chase told me my property was worth $390,000, and they gave me a line of credit of $300,000," Nestory explained. "In 2008, they told me my house was only worth $315,000, and dropped the line of credit to $256,000." Since then, "they say they've reappraised, the property is worth $285,000, and they're freezing the line of credit," he said.

Nestory says he fixes his sidewalks, hires landscapers, pays bills on time. And he insists prices haven't fallen that far in Barclay.

Why would Chase want to cut him off, if he's solvent? Nestory figures Chase wants out of the sweetheart rate it offered four years ago. "They won't let me borrow because the loan is too favorable," he said.

"We're very clear with customers that if the [home] value has gone down, their line of credit may go down too," Chase spokesman Tom Kelly told me.

So did it? I called real estate veteran Darlene Borda, at Prudential Fox Roach in Cherry Hill.

"Sadly, it's true, if you look at the comps," she said. A similar home with a one-car garage in Nestory's neighborhood recently sold for $270,000. Homes like Nestory's "could ask $325, or $315," she estimated, and settle at $290,000 or $300,000.

What to do? Nestory may get a new loan on his Shore house. He may go back to Commerce (now TD Bank), but its rate is higher.

Why not just spend less? "I can do that," he told me. "It's not like I'm broke. But I like to have something extra, to lean on in an emergency."

It just won't be the house in Cherry Hill.