History > 2009 > USA > Federal Department / Federal Justice (II)
Settlement Over Merrill Bonuses
September 15, 2009
The New York Times
By LOUISE STORY
A Federal District judge on Monday overturned a settlement between the Bank
of America and the Securities and Exchange Commission over bonuses paid to
Merrill Lynch executives just before the bank took over Merrill last year.
The $33 million settlement “does not comport with the most elementary notions of
justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in
federal court in Lower Manhattan.
The ruling directed both the agency and the bank to prepare for a possible trial
that would begin no later than Feb. 1. The case involved $3.6 billion in bonuses
that were paid by Merrill Lynch late last year, just as that firm was about to
be merged with Bank of America. Neither company provided details of the bonuses
to their shareholders, who voted on Dec. 5 to approve the merger.
The judge focused much of his criticism on the fact that the fine in the case
would be paid by the bank’s shareholders, who were the ones that were supposed
to have been injured by the lack of disclosure.
“It is quite something else for the very management that is accused of having
lied to its shareholders to determine how much of those victims’ money should be
used to make the case against the management go away,” the judge wrote.
Bank of America has argued in its filings with the judge that it did nothing
wrong in its disclosures.
The judge also criticized the S.E.C., which has been trying to step up the
profile of its investigations unit. The judge quoted Oscar Wilde’s “Lady
Windermere’s Fan” in the end of his ruling to say that a cynic is someone “who
knows the price of everything and the value of nothing.”
The proposed settlement, the judge continued, “suggests a rather cynical
relationship between the parties: the S.E.C. gets to claim that it is exposing
wrongdoing on the part of the Bank of America in a high-profile merger; the
bank’s management gets to claim that they have been coerced into an onerous
settlement by overzealous regulators. And all this is done at the expense, not
only of the shareholders, but also of the truth.”
The case before Judge Rakoff is just one of several investigations into the
bank’s deal with Merrill. Andrew M. Cuomo, the attorney general of New York, is
also investigating the bank’s disclosures of bonuses and of Merrill’s surprise
losses late last year. The House Committee on Government Oversight and Reform is
also looking into the merger.
It is not the first time Judge Rakoff has ruffled feathers in the business
world. In 2003, for example, he refused to approve what he saw as a low
settlement the S.E.C. had negotiated with WorldCom, the phone company that
collapsed in an $11 billion accounting fraud.
Rewarding — and punishing — the right parties was at the fore of the judge’s
thinking in that case. Shareholders of WorldCom had already lost out. So when
the judge forced the S.E.C. to increase the $500 million fine it was levying
against WorldCom to $750 million, he also demanded that the money be paid out to
the company’s shareholders, rather than to the agency.
Judge Rejects Settlement
Over Merrill Bonuses, NYT, 15.9.2009,
State Discriminated Against Mentally Ill, Judge Rules
September 9, 2009
The New York Times
By JAMES BARRON
New York State had discriminated against thousands of mentally ill people by
leaving them in privately run adult homes, which are usually larger than the
disgraced psychiatric hospitals they were intended to replace, a federal judge
ruled in a decision released on Tuesday morning.
Judge Nicholas G. Garaufis ruled that the state was violating the Americans with
Disabilities Act by housing more than 4,300 mentally ill people in sprawling and
often poorly run homes. He said the residents are essentially warehoused with
little hope of mingling with others in the wider community.
Judge Garaufis wrote in a 210-page decision that the state had “denied thousands
of individuals with mental illness in New York City the opportunity to receive
services in the most integrated setting appropriate to their needs.” He also
said the state had failed to show that reforms proposed by the nonprofit group
that filed the case “would constitute a ‘fundamental alteration’ of the state’s
mental health service system.”
“We’re thrilled,” said Cliff Zucker, executive director of Disability Advocates,
the nonprofit legal services group that took the state to court . “This is an
extraordinarily important decision that is going to improve the lives of 4,300
people who are now being warehoused in institutions unnecessarily.”
Disability Advocates had argued that many people in adult homes could be better
served by living in their own apartments, at no greater expense to the state.
The state had said that residents of adult homes already lived in an integrated
The adult home system took shape in the 1960s and 1970s, when New York shut down
large state-run psychiatric hospitals as part of what became known as
deinstitutionalization. State officials turned to profit-making adult homes
because little had been done to prepare for housing the patients once they had
been discharged from the psychiatric wards. Federal disability money was to pay
for the homes and the meals and activities they would provide. The homes were
responsible for bringing in outside psychiatrists and doctors.
Disability Advocates filed the lawsuit in 2003 after a series in The New York
Times described conditions in adult homes based on a review of more than 5,000
pages of annual state inspection reports and 200 interviews with workers,
residents and family members. The Times’s investigation found a number of
systemic problems, including untrained workers and gaps in supervision.
Against Mentally Ill, Judge Rules, NYT, 9.9.2009,
Reviving Civil Rights
September 2, 2009
The New York Times
Few parts of the federal government veered more radically off course in the
Bush years than the Justice Department, including its vital civil rights
division. Attorney General Eric Holder has made clear that he intends to put the
division back on track. That will not be easy, but restoring the nation’s
commitment to fairness in voting, employment, housing and other areas is one of
the new administration’s most important challenges.
The Bush administration declared war on the whole idea of civil rights, in a way
that no administration of either party had since the passage of the nation’s
civil rights laws in the 1960s. It put a far-right ideologue in a top position
at the civil rights division and, as the department’s inspector general said in
a scathing report, he screened out job applicants with civil rights sympathies.
The division abandoned its “historic mission,” notes John Payton,
director-counsel of the NAACP Legal Defense and Educational Fund — enforcing
civil rights laws, in areas from housing to employment. In some cases, like
voting rights, it aggressively fought on the anti-civil-rights side.
It is heartening that the Obama administration has proposed substantially
increasing the number of lawyers in the division. They will have plenty of work.
On voting, the division needs to drop the Bush-era obsession with the overblown
problem of vote fraud and put the emphasis back where it should be — making sure
protected groups are not denied the right to vote. It has to ensure that the
voter rolls are not being illegally purged, and that political operatives are
not engaging in dirty tricks to suppress the minority vote. It also needs to
make state and local governments comply with the “motor voter” law, which
requires registration to be available at motor vehicle bureaus and welfare
On employment discrimination, the division should once again start bringing the
sort of high-impact cases that the Bush administration abandoned.
On discrimination in education, it has to navigate the bad decisions the Supreme
Court has handed down recently and provide concrete guidance for school
districts on how to legally promote integration.
Perhaps no group was more abandoned for the last eight years than prisoners. The
division should challenge the dangerously crowded and inhumane conditions that
are increasingly becoming the norm in the nation’s prisons and jails. As Wade
Henderson of the Leadership Conference on Civil Rights notes, a few strong
lawsuits of this kind could prod many institutions to reform voluntarily.
The division should also tackle predatory lending and other financial bias
against minorities. With millions of Americans facing foreclosure, this sort of
discrimination looms especially large.
The Justice Department has enormous power under Title VI of the Civil Rights Act
of 1964 to combat discrimination in any institution or program that receives
federal funds. This authority is more important than ever with federal stimulus
money flowing. The division should use it to ensure that public schools,
hospitals, transportation systems and other institutions do not discriminate.
Gay men and lesbians still largely stand outside the division’s protection. If a
hate crime law covering them is passed soon, as appears likely, the division
should use it aggressively. Mr. Holder should also press Congress to pass the
first federal law against job discrimination based on sexual orientation.
This agenda would be difficult in the best of circumstances, but the civil
rights division is working under the enormous handicap of being leaderless.
Senate Republicans have put a hold on the nomination of Thomas Perez to head it.
The reasons offered are spurious. Their real agenda seems to be impeding the
division from doing its work. When Congress returns, Majority Leader Harry Reid
should make sure Mr. Perez is quickly confirmed.
Reviving Civil Rights,
Justice Dept. to Recharge Enforcement of Civil Rights
September 1, 2009
The New York Times
By CHARLIE SAVAGE
WASHINGTON — Seven months after taking office, Attorney General
Eric H. Holder Jr. is reshaping the Justice Department’s Civil Rights Division
by pushing it back into some of the most important areas of American political
life, including voting rights, housing, employment, bank lending practices and
redistricting after the 2010 census.
As part of this shift, the Obama administration is planning a major revival of
high-impact civil rights enforcement against policies, in areas ranging from
housing to hiring, where statistics show that minorities fare disproportionately
poorly. President George W. Bush’s appointees had discouraged such tactics,
preferring to focus on individual cases in which there is evidence of
To bolster a unit that has been battered by heavy turnover and a scandal over
politically tinged hiring under the Bush administration, the Obama White House
has also proposed a hiring spree that would swell the ranks of several hundred
civil rights lawyers with more than 50 additional lawyers, a significant
increase for a relatively small but powerful division of the government.
The division is “getting back to doing what it has traditionally done,” Mr.
Holder said in an interview. “But it’s really only a start. I think the wounds
that were inflicted on this division were deep, and it will take some time for
them to fully heal.”
Few agencies are more engaged in the nation’s social and cultural debates than
the Civil Rights Division, which was founded in 1957 to enforce
The division has been at the center of a number of controversies over the
decades, serving as a proxy for disputes between liberals and conservatives in
matters like school busing and affirmative action. When the Nixon administration
took office, it sought to delay school desegregation plans reached under former
President Lyndon B. Johnson. The Reagan administration dropped the division’s
policy of opposing tax-exempt status for racially discriminatory private
schools. And former President Bill Clinton withdrew his first nominee to lead
the division, Lani Guinier, after her writings about racial quotas were
But such dust-ups were minor when compared with sweeping changes at the division
under the Bush administration, longtime career civil rights lawyers say.
Now the changes that Mr. Holder is pushing through have led some conservatives,
still stinging from accusations that the Bush appointees “politicized” the unit,
to start throwing the same charge back at President Obama’s team.
The agency’s critics cite the downsizing of a voter intimidation case involving
the New Black Panther Party, an investigation into whether an Arizona sheriff’s
enforcement of immigration laws has discriminated against Hispanics, and the
recent blocking of a new rule requiring Georgia voters to prove their
citizenship. (Under the Bush administration, the division had signed off on a
similar law requiring Georgia voters to furnish photographic identification,
rejecting criticism that legitimate minority voters are disproportionately more
likely not to have driver’s licenses or passports.)
Among the critics, Hans von Spakovsky, a former key Bush-era official at the
division, has accused the Obama team of “nakedly political” maneuvers.
Tracy Schmaler, a Justice Department spokeswoman, rejected such criticism,
saying those cases were decided “based on the facts and the law.”
Under the Bush administration, the agency shifted away from its traditional core
focus on accusations of racial discrimination, channeling resources into areas
like religious discrimination and human trafficking.
Department officials are working to avoid unleashing potential controversies as
they rebuild the division’s more traditional efforts on behalf of minorities.
They are not planning to dismantle the new initiatives, rather to hire enough
additional lawyers to do everything. The administration’s fiscal year 2010
budget request includes an increase of about $22 million for the division, an 18
percent increase from the 2009 budget. Other changes are already apparent.
The division has filed about 10 “friend of the court” briefs in private
discrimination-related lawsuits since Mr. Obama’s inauguration, a practice that
had dwindled in the previous administration.
In July, moreover, the division’s acting head, Loretta King, sent a memorandum
to every federal agency urging more aggressive enforcement of regulations that
forbid recipients of taxpayer money from policies that have a disparate impact
The division has also lifted Bush-era rules that some career staff members saw
as micromanagement or impediments, like restrictions on internal communications
and a ban on front-line career lawyers’ making recommendations on whether to
approve proposed changes to election laws.
Other changes from the Bush years may be harder to roll back. The division’s
downgrading of the New Black Panther Party charges, which were filed in the
final days of the Bush administration, has had rippling consequences. It
apparently prompted Senate Republicans to put a hold on President Obama’s
nominee to lead the division as assistant attorney general for civil rights,
The delay in Mr. Perez’s arrival, in turn, is stalling plans to review section
managers installed by the Bush team, including several regarded with suspicion
by civil rights advocacy groups. Under federal law, top-level career officials
may not be transferred to other positions for the first 120 days after a new
agency head is confirmed.
Bush-era changes to the division’s permanent rank may also have lingering
effects. From 2003 to 2007, Bush political appointees blocked liberals from
career jobs and promotions, which they steered to fellow conservatives, whom one
such official privately described as “real Americans,” a department inspector
general report found. The practice, which no previous administration had done,
violated civil service laws, it said.
As morale plunged among veterans, turnover accelerated. The Obama transition
team’s confidential report on the division, obtained by The New York Times, says
236 civil rights lawyers left from 2003 to 2007. (The division has about 350
Many of their replacements had scant civil rights experience and were graduates
of lower-ranked law schools. The transition report says the era of hiring such
“inexperienced or poorly qualified” lawyers — who are now themselves protected
by civil service laws — has left lasting damage.
“While some of the political hires have performed competently and a number of
others have left, the net effect of the politicized hiring process and the brain
drain is an attorney work force largely ill-equipped to handle the complex,
big-impact litigation that should comprise a significant part” of the division’s
docket, the transition report said.
At the end of the Bush administration, the attorney general at the time, Michael
B. Mukasey, began to make changes intended to reduce political influence over
entry-level career lawyer hiring. The Civil Rights Division is now seeking to
expand those changes.
It is developing a new hiring policy under which panels of career employees —
not political appointees — would decide both whom to hire and to promote for
positions from interns to veteran lawyers. The policy could be completed as
early as this month.
“We wanted to create a very transparent policy that will stand the test of time
and ensure that we hire the best and brightest,” said Mark Kappelhoff, a
longtime civil rights lawyer who is the division’s acting principal deputy
assistant attorney general.
Some conservatives are skeptical that such a policy will keep politics out of
hiring, however. Robert Driscoll, a division political appointee from 2001 to
2003, said career civil rights lawyers are “overwhelmingly left-leaning” and
will favor liberals.
“If you are the Obama administration and you allow the career staff to do all
the hiring, you will get the same people you would probably get if you did it
yourself,” he said. “In some ways, it’s a masterstroke by them.”
Mr. Holder has elsewhere called for social changes with civil rights overtones,
like the passage of a federal hate-crimes law, the elimination of the sentencing
disparity between crack and powder cocaine and greater financing for indigent
By contrast, he described his Civil Rights Division efforts as more restoration
than change. The recent moves, he argued, are a return to its basic approach
under presidents of both parties — despite some policy shifts between Republican
and Democratic administrations — before the “sea change” and “aberration” of the
“Of course there are going to be critics,” Mr. Holder said. But, he argued, “any
objective observer” would see the recent approach as consistent with “the
historical mission of the division, not straying into some kind of liberal
orthodoxy. It really is just a function of enforcing the statutes.”
Justice Dept. to
Recharge Enforcement of Civil Rights, NYT, 1.9.2009,