BofA settles with the SEC, is however sued by NYAG Cuomo

Busy day for BofA. I haven't had the opportunity to read through the 30-some page settlement proposal and 90 page complaint yet, but here's the surface data.

The SEC announced today it reached a settlement with BofA as regards both pending suits: failure to properly disclose Merrill bonuses, and separately, failure to properly disclose Merrill 4Q08 losses, to BofA shareholders prior to a proxy vote on the Merrill merger. The settlement submitted to S.D.N.Y. Rakoff for approval includes a $150 million fine and a remediation plan. The $150 million is to be distributed to BofA shareholders on an as yet undetermined schedule. The remediation plan includes new corporate governance for BofA over the next three years: retention of an independent auditor to scrutinize disclosure procedures, as well as "disclosure counsel" who will report to the Board's Audit Committee; the CEO and CFO will certify that they have personally reviewed annual and merger proxy statements; new conflict rules for members of and consultants to the Board's Compensation Committee; a non-binding advisory shareholder say-on-pay vote on matters of executive compensation; and incentive compensation practices will be disclosed on BofA's consumer website.

Half a dozen things come to mind. First, one of the principal reasons Judge Rakoff rejected the Summer 2008 settlement was he felt it unfair that shareholders would bear the burden of the mistake BofA corporate actors made. This has been part of Rakoff's theme – unending in that it has never been answered – that individual actors are responsible for making the decision not to disclose the Merrill bonuses. It remains to be seen how Rakoff will respond to the new terms of the settlement. And I'm not quite certain how the shareholders will benefit from paying themselves a sort of dividend payment on the matter (because although the distribution schedule is as yet undetermined, that's effectively what will happen, correct? BofA pays the fine to the SEC, and then the SEC redistributes the fine to BofA shareholders?).

And second, the SEC includes a lengthy laundry list of 'thank yous' in its public relations release, including the FBI, NCAG Cooper, and TARP's Special Inspector. There has been months of rumor that Cooper and the FBI were working in tandem on separate charges >> I am eager to have the opportunity to read the settlement proposal to see if Cooper has waived any further litigation with the SEC settlement.

And although the SEC also thanks NYAG Cuomo's office, we all know now that Cuomo certainly made no such waiver. Cuomo's office has filed a civil securities suit under the Martin Act against BofA, its former CEO Ken Lewis (now retired), and former CFO Joseph Prince (since stepped down). Cuomo alleges the defendants misled both the public and government actors as regards the Merrill acquisition. Via telephone with the WSJ (NYTimes?), Cuomo remarked, "We believe bank management understated the Merrill Lynch losses to shareholders to get shareholders to approve the deal then [turned around and] overstated their ability to terminate the agreement to get $20 billion from [the] federal government. That is just fraud." Cuomo continued, alleging BofA "exploited" the economic fear in 2008 and "defrauded" the taxpayers. Uber interestingly, Neil Barofsky, Special Inspector General for TARP, was also on the call.

BofA has denied the allegations and indicated it will mount a defense.

Copies of the SEC settlement proposal and NYAG complaint are here. The story is being reported everywhere, apparently first by the NYTimes, but also at AmLaw, Bloomberg, and the WSJ. This blawg's discussion of the BofA matter is here.

Image credit: BofA.

Bank of America, AIG, and Comverse

I have a post I am writing on dischargeable suits in business bankruptcy, but am right now pressed for time (and since we're all subject to the nightmare that is the first week back from the Holiday, am summarizing here articles I would have otherwise turned into a post >> thanks for your patience!).

AIG GC Anastasia Kelly's threat to walk in light of Compensation Czar Feinberg's December rulings on pay was real - she is in fact leaving, and with several million in severance compensation. This blawg's discussion of Compensation Czar Feinberg can be found here.

My most favorite legal actor right now, Bank of America!! As we all prepare for the March 1 trial date, Rakoff of the S.D.N.Y. ruled Monday that BofA would not be able to present expert testimony that media reports of the Merrill bonuses constituted disclosure to shareholders. This blawg's discussion of BofA can be found here.

Part of Comverse Technology Inc.'s $ 225 million stock option backdating settlement will include a $1 million contribution by former GC William Sorin (which in exchange will drop a pending suit waged against him by the company). Some of this blawg's discussion of stock option backdating can be found here.

UPDATE: executive compensation, corporate governance, and securities

I am so tired I want to scratch my eyes out. And so in lieu of going blind, I am only posting updates of some of what has transpired over the last two weeks regarding some of my pet issues. FWIW - presented here briefly to bring this blawg up-to-date. Thanks - have a *Great* New Year's!!

Bank of America

So with only two weeks left in the year, and right after they repaid their federal funding, BofA chose a new CEO ... who knew it would be the same guy who had a hand in the way the Merrill merger closed and who did not impress Congress while testifying about it. Oh, and FYI: the SEC has broadened its investigation.

Bank Closings

We're now up to 140 banks the FDIC has closed in 2009 alone. Good times.

Banker Bonuses

France follows the U.K. and levies a hefty tax on banker bonuses. Some call it "unfair."

Goldman is a veritable money machine, but there are rumblings inside that the "ethos" has changed ... which is largely of no importance to the demonstrators on the street who still want to see the firm burn.

Outgoing Morgan Stanley CEO John Mack has, for the third year in a row, rejected his year-end bonus. He noted the "unprecedented environment" and "extraordinary financial support" the federal government has used to buttress the banking industry. Morgan Stanley itself is modifying its compensation structure; nothing is definite yet, but rumour is that nearly 2/3rds of executives' pay will come in the form of stocks and will be subject to a clawback provision.

And whether you needed a rumour to confirm it: that all important meeting between banking heads and the President was more show than anything else. From whose perspective, I wonder ...

Compensation Czar

Citi Group and Wells Fargo got out from under TARP restrictions, including Kenneth Feinberg's executive compensation rulings. Good week for Citi - they also got a tax break.

It was announced just yesterday that GMAC will receive several billion more in federal funding.

And just as we learn about the inner turmoil AIG faced as it melted, we shouldn't be surprised bonuses promised to NYAG Cuomo to be be repaid are slow in materializing ... Oh, and Feinberg's recent rulings were modified in light of some fits thrown at AIG.

Re-regulation

The ABA is out to destroy it.

Barney Frank's Wall Street reform package includes significant regulation of the credit rating agencies, including offering investors the explicit right to sue the agencies.

Stock Option Backdating

Broadcom criminal suits are dismissed; all three. Just today, then, Broadcom antes up to settle outstanding shareholder suits.

Similarly, Comverse settles for a record amount, represented by our favorite counsel du jour, Wachtell.

Reyes is so-o not off the hook; Brocade and stock option backdating

Recall the backdating drama of Brocade Communications and its former CEO Gregory Reyes? It was hot stuff for awhile, and spawned umpteen cases, including criminal allegations against Reyes. Reyes' guilty verdict was reversed over the summer due to prosecutorial misconduct, but AmLawLitigation Daily is reporting the rumour that the case is about to be retried. Recall: Reyes' 21 month sentence was stayed as a result of the summer reversal.

You can read more here.

BofA adds Cleary as Co-Counsel Defense to S/H Suit

I wrote earlier about my confusion with BofA's use of Wachtell Lipton for a new significant merger agreement (in light of the dramatic litigation and investigation that unfolded over BofA's handling of the other merger). It appears others are also scratching their heads ...

AmLaw reported last week that BofA has added Cleary Gottlieb as co-counsel to defend one of several shareholder suits pending against it (although the suit wasn't named in the report, it is likely the suit occuring in either the S.D.N.Y. or the Delaware Chancery Court). The why? Wachtell was defending BofA in the matter as sole counsel, but circumstances suggest that Wachtell will also be a BofA defense witness if the matter reaches trial. Cleary was added as a disinterested co-counsel. While Cleary is not similarly implicated as a BofA defense witness, Cleary is defense counsel to BofA in the SEC litigation pending before the S.D.N.Y.

SEC Shareholder Director Nomination Proposal: Rule 14a-11

I’ve actually had this post in outline form on my desktop for weeks now …Thank god for Thanksgiving and down-time!

The Securities and Exchange Commission (“SEC”) deferred its decision to expand shareholder (“s/h”) board nomination rights until 2010. Chairwoman Shapiro wanted to review the hundreds of comments that were submitted regarding the proposal. Recall the comment period elicited joint letters from both sides of the aisle, BigLaw defense and plaintiff securities firms.

The proposal is available here, and I wanted to share some of what I read (not ironically, what has generated the most discussion). Broadly speaking, the proposal would allow shareholders greater access to a company’s board. Specifically, the SEC proposes a new rule, Exchange Act Rule 14a-11, that would require a company to include in its proxy materials shareholder nominees for director. Any state law, articles of incorporation, or corporate by-laws that disallow shareholders to nominate directors would supersede the proposed rule. The rule is not intended to apply to shareholders seeking either control of the company or possession of “more than a limited number” of director seats. Refer infra. discussion for clarification of what “more than a limited number ” means.

The SEC theme is fortifying existing shareholder rights. Proposed rule 14a-11, for example, is to remedy what the SEC identifies as an obstacle to a s/h’s right to nominate and elect the board of directors. That being, shareholder nominees float the expense to present their nomination to the shareholders at large for purposes of voting. Board nominees, on the other hand, are simply listed in the company’s proxy materials, and therefore do not have to finance the expense.

Ownership Floors

In an effort to address contra arguments (cost and disruption to the company), the SEC has proposed an eligibility requirement to leverage 14a-11. There is a minimum ownership threshold that must be met by the nominating shareholder or the shareholder group (“shareholder(s)"). The breakdown:

∙ 1% - For large accelerated filers, and registered investment companies with net assets of $700 million or more (company type and size, as defined in Exchange Act Rule 12b2).
∙ 3% - For accelerated filers, and registered investment companies with assets between $75 million and $700 million.
∙ 5% - For non-accelerated filers, and registered investment companies with assets less than $75 million.

These percentages are beneficial ownership as of the time of s/h notice of the vote, and as a percentage of the company’s securities entitled to be voted on at the time of the vote. Further, shareholder(s) must have owned the shares for a minimum of one year preceding the notice, and intend to continue to do so up until the vote in fact occurs.

Disclosures to SEC

Shareholder(s) must also provide notice to the SEC of their intention to include a nominee in the company’s proxy materials; Schedule 14N. This same disclosure would also be made to the company, and is manifold. It contains information such as the percentage of securities held by the nominating shareholder(s), the length of the ownership and the intent to continue to hold the securities until the vote, as well as “certification” that the shareholder(s) do not intend to change control of the company or obtain “more than a limited number” of seats.

Nominating shareholder(s) would also attest that the nominee satisfies standards of director independence as required by a national securities exchange or association, or for a registered investment company, that the nominee was not an “interested person” per § 2(a)(19) of the Investment Company Act.

Further, nominating shareholder(s) would attest that there is no agreement between the nominating group and the company as regards the nominee (Ie., once elected, the director would block certain issues from moving forward). Unsuccessful negotiations with the nominating committee of the company to have the candidate included on the company's proxy card as a management nominee, or negotiations regarding disclosure of the shareholder nominee, do not count.

“More than a limited number”

This limited number is either one nominee, or a quarter of the total possible director positions on a board; whichever is greater. If shareholder(s) successfully nominate and elect 25% of a board’s directors, and those directors' terms overlap with the next nomination and election process, the company is not required to include any further shareholder nominees in the impending proxy materials (so as to avoid greater than 25% of the board being composed of shareholder nominees). Further – as regards which shareholders’ nominees will get priority – first in line is first in time. 14a-11(d)(3).

Closing

As a threshold matter, inclusion of shareholder(s) nominee in the company’s proxy materials would not prohibit other solicitation materials that currently exist and are proper (SEC Ie., a website).

Since an SEC decision on the matter has been deferred until 2010, if approved, Rule 14a-11 would not be applicable during the 2010 proxy season.

View full post and comment string ...

Wells Fargo repaying its clients $1.3 Billion over auction rate securities ("ARS")

I wrote over the summer regarding New York Attorney General Cuomo's continuing campaign for state governor, that then was taking the form of threatening litigation against Charles Schwab for refusing to take responsibility or pay liability to compensate investor loss on auction rates securities ("ARS").

Briefly, the hullabaloo on ARS ... they were (the ARS market collapsed in February 2008) a financial product with variable interest rates that were determined at auction. They were represented by the banking industry as liquid; that despite the instruments frequently coming in the form of debt bonds assigned lengthy time periods, that investors would always be able to sell the ARS at the next auction. Auctions can and do fail, however: if there are not enough buyers and sellers participating, the auction fails and ARS holders are prevented from making their allegedly liquid assets liquid.

Dealbreaker posted today that Wells Fargo has bitten the bullet and is repaying clients who bought the product, to a tune of $1.9 billion. The bank is also paying a penalty of $1.9 million for misrepresenting to clients the product's liquidity. Keep in mind that Wells Fargo sold nearly $3 billion in ARS.

Wells' agreement was reached with the state securities regulators from California, Georgia, Missouri, Oregon, Texas, Utah, and Washington. The $1.9 million penalty fee is to be distributed to these states.

Back to Schwab quickly: Chuck came out angry and swinging at Cuomo over the summer, but there has been little indication from either party since of any escalation of the matter. I don't think for a moment that means the matter is closed, and perhaps the recent payments by Wells Fargo will recall to Cuomo his initial endeavor.

Goldman Sachs' and Blankfein's $500 Million Apology

Numbers people should stick to numbers, and leave the talking to attorneys ...

I wrote last week regarding Goldman Sachs' CEO Blankfein's comments that were understood to mean: our workers are more productive than other workers, which is why they're compensated so much; and, Goldman is doing "God's work."

Good stuff.

Goldman and Blankfein have made a formal and very public apology since. Blankfein stated at a conference in New York on Tuesday, in the context of the financial drama that has occurred on Wall Street and trickled throughout the world's economies: "We participated in things that were clearly wrong and have reason to regret. We apologi[z]e."

Then just Tuesday, Goldman announced that in partnership with Warren Buffet it has created a small business aid program with assets $500 million in capital.

That's nice. Not to be ungrateful, but let's be adults about these numbers:

• We're all well aware of the large sum of federal money given to buttress AIG last fall. Not everyone is aware, however, that $14 billion of that federal money was then transferred to Goldman.
• Goldman Sachs has earned $8.4 billion in 1Q09 through 3Q09.
• Goldman has put aside $16.7 billion for 2009 compensation expenses (which if the trend is continued, will amount to $ 21 billion in compensation expenses by December 31st).

Breaking BofA UPDATE: Unlicensed Counsel

Although it doesn't go to the substance of the various litigation BofA is juggling, it is scandalous nonetheless (and BofA is sort of like Britney Spears now: everything is newsworthy). Corporate Counsel is reporting this morning that in middle of the Merrill acquisition and merger, Brian Moynihan served as an interim General Counsel for BofA for a whole 37 days. The raging gossip: for 8 of those days, Moynihan had an inactive license.

Interestingly, although I received the news this morning via Corporate Counsel and AmLawDaily, neither link is working ... (cease and desist letter?). So you can check out the story in greater detail at The Business Insider, The Boston Globe, or The Telegraph.

BofA Updates

Because you knew somewhere among the summary updates I would insert BofA news, right?

I have written here before of the “pressure” BofA may have put on federal actors preceding conclusion of the Merrill acquisition ("pressure" that is argued to have forced $20 billion in federal support for the transaction). Remember: recent revelations are a result of documents previously protected by a/c privilege being produced to investigators. Documents apparently show outside counsel turning to his left (BofA) to indicate one opinion of whether a material adverse change ("MAC") triggered an escape clause in the Merrill transaction, and then turning to his right (federal actors) and indicating a polar opposite opinion. (Recall, the MAC discussed here is the enormous 4Q08 Merrill losses). It's not looking good - the contrary opinions were literally given hours of one another.

In a related story, though not as regards the "pressure" issue, WSJ ran an interesting article on Judge Rakoff. See also (Rakoff is the S.D.N.Y. judge the SEC case against BofA is pending in front of; trial date slated for March 01, 2010). The inside trading case involving Galleon Management founder Raj Rajaratnam is also before the Good Judge. Pundits speculate this will be a second high-profile opportunity for Rakoff to skewer the SEC and its litigation strategy.

Financial Stability and Improvement Act of 2009

The Financial Stability and Improvement Act of 2009, otherwise known as draft legislation for the “Too Big Too Fail” institutions, was proudly unveiled last week by Treasury and the House Financial Services Committee. Here’s the meat of what it proposes:

Creation of another (?!) Council, this one the Financial Services Oversight Council, which first identifies financial companies and activities that pose a threat to systemic stability, and then monitors them. No really – without other elaboration as to how to identify or effectively achieve any of that, this is what the draft legislation proposes. This Council, evidently, has a massive data-gathering responsibility (data generated by various federal financial agencies), and has the ability to name concerns for federal action.

A fairly aggressive approach to holding company regulation. Specifically, the draft legislation removes Gramm-Leach-Bliley Act restrictions on federal power (specifically, this would allow various federal agencies to regulate). Background: Gramm-Leach-Bliley, alternatively known as the Financial Services Modernization Act of 1999, rolled back Glass-Steagall (1933) in part. But a big part. Glass-Steagull said investment banks are investment banks, and commercial banks are commercial banks, and insurance companies – very big surprise – are insurance companies >> keep your buckets separate. Gramm-Leach-Bliley, among other things, allowed these separate actors to consolidate. So one bank could offer all variety of financial services, and voila, usher in the dawn of the financial service industry.

• Following presumed enactment, no further commercial companies will be allowed to own banks, industrial loan companies ("ILCs"), or any specialty bank charters.
• Thrift holding companies would be subject to fed supervision, and such charters would be reserved for entities focused on mortgage lending.

The draft legislation has a very federal bankruptcy code-type idea. The draft legislation contains language that provides for wind-down activities. Specifically, “that shareholders and unsecured creditors bear the losses, not taxpayers.” The draft legislation delegates the FDIC with this wind-down responsibility, and costs are to be provided for by the failed company (presumably priority above the creditors; *yay* lawyer drafters). VERY INTERESTING: if the company actually does not have enough money to wind-down, a “Resolution Fund” will pay the deficit. This fund is created by “assessments on all large financial firms” (later defined as companies with assets of $10 billion or more).

Not as interesting: there are new organization models; ie., the Treasury Secretary must approve any Fed effort to provide liquidity; and banking regulators and the SEC have to come together to write rules requiring creditors (or securitizers where the loan was not originated by the creditor) to retain 5-10+ percent of any credit risk associated with loans for securitization (is it me, or was that the rule right there?).

Investor Protection Act of 2009

Because last week was hot for re-regulation, I promised a summary of what I saw. So here goes ...

The Investor Protection Act of 2009 was proposed by Treasury in July, and will probably be voted out of the House Committee on Financial Services this week for a House floor vote later this fall. Some of the more rockstar aspects of this bill include:

Should advisers and broker-dealers owe the same fiduciary duty to investors? Currently, investment advisers must act in the best interests of the client; broker-dealers, on the other hand, are only legally required to provide a suitable product for investment. Keep in mind the distinction here: investment advisers offer financial advice to individuals or asset management to funds or corporations; broker-dealers actually trade shares to benefit their own accounts (whether as an agent for a client or as a principal on their own behalf).

The bill creates new SEC powers, in two ways. First, it amends the Investment Company Act of 1940 to require mutual funds to disclose more information to investors. Second, the bill also creates an Investor Advisory Committee that represents investor interests within the SEC.

Also-also: there are whistle-blower provisions that offer protections and compensations; and investment advisory firms with assets of less than $100 million will forthwith be regulated by state securities agencies.

UPDATE (11.05.2009, 145p): The legislation was voted out of Committee yesterday (11/04) and is headed to the House floor for a vote. Controversial meat on that bone is the Garrett-Adler amendment that was successfully attached to the bill. The amendment permanently exempts small businesses from a requirement that outside auditors review a company's internal control and environment (as regards issues of accounting, fraud, and waste). Small business is defined as companies with a market value less than $75 million. This will exempt approximately half of all publicly-traded companies. Brief background: the outside auditor requirement exists as part of the post-Enron Sarbanes-Oxley ("SOX") regulation. Historically, smaller firms have been exempted from the auditor requirement due to cost concerns.

Ken Lewis takes no salary or bonus for 2009!

No worries - Dude takes home over $100 million in a retirement package regardless (which conveniently for him, was arranged before BofA received federal monies and came under the supervision of Treasury's Special Master for TARP Executive Compensation, Kenneth Feinberg).

I posted earlier today about Feinberg and AIG, but Feinberg has struck again: he has knocked Lewis' $1.5 million base pay to zero - and Lewis has agreed. Lewis, in fact, will have to repay $1 million back to BofA for salary already received this year.

Hat-tip: WSJ.

Photo credit: Dealbreaker.

New BofA General Counsel: Edward O'Keefe

As an introductory remark, recall BofA is facing investigations/suits from NY, OH, and NC attorney generals, the SEC and DOJ/FBI, and almost two dozen shareholder suits. Dude - if he can juggle this, that's a lot of lateral value, right?

Corporate Counsel has an interesting post today about the new GC, and who he's reporting to (evidently to the Chief Administrative Officer [HR-ish] and not to the CEO; reported as unusual). Of course there's some discussion of how this indirect reporting method may have contributed the current BofA dramas. Check it out here.

Internal BofA Emails Starting to Hit the Press (Contemporaneous to slashing s/h dividends to 1¢ per share)

Apart from the shareholder quip, I doubt this exchange is actionable, but given BofA's recent waive of privilege and subsequent (over)production of documents to various federal and state bodies, news reports like this are going to be rampant over the next several months. FWIW - enjoy!

Between BofA Directors Chad Gifford ("CG") and Thomas May ("TM") the day BofA cut dividends to 1¢ per share; emphasis in original.

CG: Concentrate on the phone!!!

TM: Screw You.

CG: Unfortunately, it's screw the shareholders!!

TM: No trail.

CG: Only stated in the context of a horrible economy!!! Will effect [sic] everyone ...

TM: Good comeback, [expletive].

CG: Amaaazing ...

Hat-tip: Boston Globe.

BofA Board Waives Privilege: produces documents otherwise protected by attorney-client privilege

The WSJ reported last night that BofA's board voted Friday to waive it's attorney-client privilege, producing documents to various moving parties regarding the Merrill merger. Specifically, the documents produced will be between BofA and outside counsel regarding Merrill 4Q08 losses, the Merrill 2008 bonuses, and the manner and extent those bonuses would be publicly disclosed.

I have followed the BofA and Merrill matter closely (See e.g. here and here). Recall briefly that as various government and plaintiff investigations proceeded, BofA executives maintained they executed the Merrill merger and Merrill bonus disclosure per the advice of outside counsel. Then when asked what counsel advised, BofA executives indicated such information was privileged. BofA maintains they have done nothing wrong.

Big Law implicated in the matter? BofA outside counsel during the merger was Wachtell; Merrill counsel during the merger was Shearman Sterling. Current BofA counsel, as regards the various investigations into the Merrill merger, include Cleary Gottlieb and Paul Weiss.

BofA for Today: UPDATES

BofA is simply the gift that keeps on giving.

The Board's move to replace Lewis as CEO is growing more problematic than anticipated, and creating some waves. There are concerns that names being floated are not worthy ("tainted" by the Merrill merger decisions).

Ken Lewis' retirement pay will comfortably total over $100 million, in accrued benefits and deferred compensation (including stock). Despite Lewis' performance up to the Merrill merger (that largely made BofA the titan it is today), people are clamouring for Czar Feinberg to veto that figure. No comment from Feinberg's office.

On top of this: there are rumblings about what can Lewis was advised by his GC at the time of the Merrill merger, and if he actually ignored the counsel. I suspect this rumour is going to grow between now and the time of the SEC trial ...

Which, by the way, has been moved to March and is now a jury trial.

Regarding the various shareholder matters? Earlier this week, a major BofA shareholder filed a document with the SEC making various demands on the BofA board (GC should talk, and start an internal investigation by an other outside counsel). Separately, a motion to dismiss a shareholder suit is occurring next week in Delaware (a request has been filed with the court to webcast the matter).

Will limiting bankers risk-taking really fix it all?

This morning Dealbreaker linked to a NYTimes article that is worth reflection. Regulators around the world have identified what they think were the various boogey-men of this economic crisis, and are making an effort to reduce banker risk-taking, promote long-term perspective, and increase accountability. With that in mind, take into account:

Tie executives’ compensation to their company’s stock price.
Withhold big paydays for years. Claw back bonuses if things go wrong. And force risk-loving traders to gamble with their own money, not just their company’s. In fact, those strictures [sic] were part of a compensation plan that Merrill Lynch adopted voluntarily in 2006 — two years before the company collapsed into the arms of Bank of America. But the Merrill program, which was supposed to align its top employees’ pay with the company’s long-term performance, did not keep workers from taking risks that nearly sank the brokerage giant. And some of its senior executives still stand to collect millions of dollars in stock under the plan.

Hat-tip: Dealmaker.

Maloney & Porcelli Fake Receipt Generator, Stoneridge, and Scheme Liability

How does an idea like this get out of a marketing department?

The WSJ reported yesterday that Maloney & Porcelli's steakhouse has created an online receipt generator to expense otherwise unexpensable items. So let's say you spend $150 on a steak lunch (or a mani, pedi, and massage); largely unexpensable, right? But the steakhouse's website allows you to enter the $150 amount and receive a cash receipt that details an expensable item (offices supplies, cab fare, etc.). Seriously - check it out here. There's no charge for a fraudulent receipt: you merely go to the website, enter an amount, and a pdf receipt is generated for you (with aesthetic elements including frayed edges and slight discoloration). If the amount you entered is particularly large, you will receive several fraudulently generated receipts that total your amount.

The restaurant reports that in one week, over 88,000 fake receipts have been downloaded. An ad executive and webmaster interviewed for the article were represented as blase regarding legal culpability. I find that danerously short-sighted, but more honestly was intriqued by the larger context of this sort of PR stunt. (I have been debating a post about last year's Stoneridge decision, the proposed legislation to overturn it and institute scheme liability, and the varying subsequent lower court treatments of the decision. Seeing this article has cemented my intent to write on the matter, although I think I will break it up into several posts. Stay tuned!).

You better check the receipt generator out now >> Maloney & Porcelli has already received several cease-and-desist orders from franchises misrepresented on the fraudulent receipts, and I suspect more are on the way ...

Photo credit: "Maloney & Porcelli Expense Report Generator."

BofA UPDATES: Emergency CEO and Some Federal Pressure (but not to hide the bonuses)

Good Morning! Two quick notes, reported across the media outlets yesterday afternoon and this morning:

Preceding Ken Lewis' signal for early retirement, the company created a committee to name an emergency CEO. Post-Lewis-announcement, the efforts have been accelerated and a contingency plan is expected to be submitted to the board for approval this week. This contingency plan is also expected to be submitted to government regulators for approval (BofA received TARP funds). Pending both approvals, the plan would only come into affect if the current legal drama forces Lewis to step down even earlier than announced.

Separately, an other BofA committee is investigating long-term replacements for the CEO. The final list will also be submitted to the board and the federal government for approval.

And finally, TARP Special Inspector General Neil Barofsky was also investigating the matter of whether the federal government unduly pressured BofA into the Merrill deal. Barofsky concluded that while Fed and Treasury pressure was applied to BofA to complete the deal, federal officials did not advise withholding public disclosure of the Merrill bonuses.

*Happy*Tuesday*