Judge rejects settlement deal on Merrill bonuses

NEW YORK - A federal judge yesterday rejected a $33 million settlement between the Securities and Exchange Commission and Bank of America Corp., saying the case involving bonuses paid to Merrill Lynch executives must go to trial.

The SEC had accused the bank of providing inadequate disclosure about the bonuses at Merrill, which is owned by Bank of America.

The ruling comes one month after the agency and the bank thought they had put a thorny issue behind them, and it leaves the SEC with the task of mounting a case against BofA over one of the most sensitive issues of the financial crisis - executive pay on Wall Street.

The SEC announced last month that it had settled its civil charges against BofA, which agreed to buy the New York investment bank last year. BofA, without admitting or denying guilt, has said it didn't violate disclosure rules.

U.S. District Judge Jed Rakoff held up his approval of the settlement, however, and ordered the SEC last month to explain why it didn't pursue charges against specific executives at Bank of America over the disclosure accusations.

After receiving additional statements from the SEC and BofA last week, Rakoff ruled yesterday that the proposed $33 million settlement "cannot remotely be called fair" and ordered that the case go to trial beginning Feb. 1.

Bank of America agreed to acquire Merrill Lynch in a hurried deal one year ago yesterday, just as Lehman Bros. was preparing to file for bankruptcy. It was later revealed that Merrill, with the knowledge of Bank of America executives, accelerated $3.6 billion in bonus payments before the deal closed on Jan. 1.

Merrill wound up paying the bonuses for 2008 despite losing $27.6 billion that year, a record for the firm. Those losses affected the bottom line at Bank of America, one of the largest recipients of U.S. government bailout funds.

Bank of America did not provide immediate comment on the ruling.

"As we said in our court filings, we believe the proposed settlement properly balanced all of the relevant considerations," SEC spokesman John Nester said in a statement. "We will carefully review the court's most recent order."

Meanwhile, the New York Attorney General's Office is preparing charges against several high-ranking Bank of America executives over the bank's alleged failure to disclose details about its acquisition of Merrill Lynch, including the bonuses and mounting losses at the brokerage, a person familiar with the investigation said yesterday.