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Judge shoots down $33M SEC - B of A settlement

Jennifer Lang

A federal judge rejected the recent $33 million dollar settlement agreement between Bank of America and the Securities and Exchange Commission. He's ordered both parties to explain themselves at a hearing scheduled for Monday. WFAE's Simone Orendain reports: This week, the SEC announced it came to a settlement with Bank of America over allegations the bank misled shareholders regarding Merrill Lynch bonuses. The SEC accused the bank of hiding from shareholders the fact that it gave Merrill permission to pay up to $5.8 billion in executive bonuses before the two companies merged. The bank agreed to settle and did not acknowledge any wrongdoing. But in his order to the two parties, US District Judge Jed Rakoff says the settlement lets the bank off the hook and doesn't force it to explain what really happened with the bonuses. Rakoff also questions whether the $33 million dollar fine would be paid with federal bailout money. The bank received $45 billion in bailout funds. "It's good for us to see that people in authority like the judge in this case agree that more needs to be done than what's been done in the past," says Rich Clayton, research director of CtW Investment Group. CtW manages pensions that hold more than a million shares in Bank of America. The pension group has been a vocal critic of the Bank of America-Merrill Lynch merger and had initially applauded the settlement. CtW and several other shareholder groups sued Bank of America over disclosure issues related to the acquisition. Clayton says Judge Rakoff could very well ask the bank to be more explicit about the settlement terms. He says, "If you actually start getting admissions of wrongdoing by a company, that puts shareholders in a much better position to protect their own interests and force the recipients of ill-gotten gains to cough some of that money back up." Clayton says in this scenario, shareholders could demand restitution from individuals, such as management, not the bank. Bank of America Spokesman Scott Silvestri says the bank "cannot envision any scenario in which [federal bailout] money would be used to fund the settlement." He says the bank looks forward to answering the judge's questions about the settlement.