Judge wants closer look at B of A deal

The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, D.C.

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KAI RYSSDAL: There was a great set of news alerts that crossed the wires earlier this week. Monday morning I'm sitting at my desk, minding my own business, when up pops the news that Bank of America will pay a $33 million fine to settle charges it misled investors. Specifically, about billions in bonuses it gave executives at Merrill Lynch.

Not two minutes later came the news that, oh by the way, the Securities and Exchange Commission was suing BoA over those bonuses. So it was pretty obvious that the two sides had worked everything out before hand. Trouble is they didn't tell the federal judge in charge of the case. He's put a hold on the deal and set a hearing for Monday morning. It's just the latest development in the BofA purchase of Merrill Lynch late last year.

From Washington, Tamara Keith explains.


Tamara Keith: To Columbia Law professor John Coffee, this settlement seems all to clean and convenient.

John Coffee: The SEC wanted to show that they were the tough cop on the block. But unfortunately, they've done this with so little transparency that they've raised more questions than they've answered.

The biggest question: Who was really at fault. Typically when the SEC settles, they fine individual directors or executives. But in this case the SEC is only going after the company.

Lynn Turner is a former chief accountant at the SEC.

Lynn Turner: The car's doing the speeding, but there's someone behind the wheel pushing the gas pedal. And that's the same thing here. Bank of America obviously violated the security laws, but there had to be someone in the company actually doing it.

Professor Coffee says that's what the judge will try to find out at Monday's hearing.

Coffee: I think he feels that the court is being misused in being asked to rubber stamp a settlement that doesn't answer any of the obvious questions about what happened and who did what.

Coffee says fining the bank rather than individual executives is also unfair to the shareholders.

Coffee: You were lied to and now you're bearing the costs because you were lied to. And that sounds like a double injury.

Another question is where the money will come from to pay the settlement, given all the financial aid BofA has gotten from taxpayers. A Bank of America spokesman told me the company looks forward to answering the judge's questions. Calls to the SEC were not returned.

In Washington, I'm Tamara Keith for Marketplace.

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