A federal judge is casting doubt on Bank of America Corp.'s proposed settlement with regulators over undisclosed bonuses paid to Merrill Lynch & Co. employees shortly before the bank acquired the Wall Street firm.
In a harshly worded order, U.S. District Judge Jed Rakoff expressed concern that the settlement wouldn't get to the bottom of whether BofA, which received federal bailout funds, intentionally misled shareholders about the Merrill bonuses.
"Despite the public importance of this case, the proposed consent judgment would leave uncertain the truth of the very serious allegations made in the complaint," Rakoff wrote in the order, filed late Wednesday.
BofA and the Securities and Exchange Commission said Monday that the bank would pay $33 million to resolve a probe into whether it hid from investors $3.6 billion in payments while the acquisition was pending.
The bank had approved up to $5.8 billion in bonuses before filing an SEC document in November that allegedly indicated that Merrill would not pay any bonuses, the agency's lawsuit said.
Judges normally approve SEC settlements quickly. But Rakoff instead ordered bank lawyers and regulators to appear before him Monday to defend the deal.
Rakoff also expressed concern about whether the BofA money would come from the $45 billion that the federal government has lent the company to help it through the financial crisis.
The settlement "in no way specifies the basis for the $33-million figure or whether any of this money is derived directly or indirectly from the . . . public funds previously advanced to Bank of America as part of its 'bail out,' " Rakoff wrote.
Spokesmen for the SEC and the bank said they looked forward to explaining the rationale behind the settlement.