Bank of America Corp and the U.S. Securities and Exchange Commission on Wednesday made a third attempt to persuade a skeptical judge to approve their settlement over Merrill Lynch & Co bonuses. But experts said they may not have done enough.

The largest U.S. bank separately rejected allegations brought Tuesday by New York Attorney General Andrew Cuomo that it is hiding behind attorney-client privilege as a defense for its decisions over Merrill. Cuomo has threatened to sue top executives if the bank by September 14 is not more forthcoming.

Bank of America agreed last month to pay $33 million to settle SEC charges it misled investors about $3.6 billion of bonuses paid to Merrill employees, which lost $27.6 billion last year.

Yet U.S. District Judge Jed Rakoff in Manhattan has twice refused to sign off on the settlement, demanding more details about who knew what about the bonuses.

He has expressed incredulity at the SEC's allowing the bank to avoid disclosures by asserting that top officials relied on lawyers to make decisions about the disclosures. The bank did not admit wrongdoing in agreeing to settle.

Wednesday's filings, which do not assign responsibility to individual executives, may not change the judge's mind.

We're getting from the SEC a bureaucratic stonewall, and from the bank an opaque silence about what went on, said John Coffee, a Columbia University law professor who reviewed the briefs. The SEC hopes the court will rubber-stamp the settlement, but it has to face that all events are tipping in the direction that no one other the SEC and the bank want this settlement to go forward. The public wants more disclosure.

Coffee teaches a class at Columbia with Judge Rakoff.

The judge could hold a hearing on the matter, the bank and the SEC could try to renegotiate the settlement, or more litigation could ensue. Indeed, Bank of America said it stands ready to litigate if the settlement is turned down.

I hope the judge rejects the settlement, said Charles Murdock, a law professor at Loyola University of Chicago. There was a failure to adequately disclose terms of the transaction and Merrill's financial situation.


Bank of America has faced months of anger by shareholders and in Congress over the shotgun Merrill merger, which resulted in a federal bailout and restrictions on executive pay.

The merger has also called into question the leadership of Chief Executive Kenneth Lewis, who this year ceded his role as chairman and lost half of his supportive board of directors.

In threatening to sue individual executives, Cuomo accused them of failing to reveal material information about the Merrill merger. This includes the bonuses, Merrill's $15.8 billion fourth-quarter loss and the bank's efforts to back out of the transaction before it closed on January 1.

He said the bank's former general counsel Timothy Mayopoulos testified to having advised executives four days before a shareholder vote as to whether the bank could invoke a material adverse change clause to cancel the merger -- but was not allowed by the bank to say what he advised.

Lewis Liman, a partner at Cleary Gottlieb Steen & Hamilton LLP representing Bank of America, called Cuomo's premise that the bank is hindering his investigation simply wrong. He said that the bank did not offer reliance on legal advice as a justification for its disclosures.

Cuomo's office declined to comment on Wednesday.


In its Wednesday court filing, the SEC said that, while the bank plainly violated proxy disclosure rules, the proposed settlement is fair, reasonable, adequate and in the public interest, and should deter future wrongdoing.

Bank of America, for its part, said there is no evidence that any individual is culpable, and no basis for showing that anyone at the bank or Merrill sought to lie to shareholders.

The bank also called far-fetched the idea it could have fooled shareholders into believing it would retain key Merrill employees if it did not authorize bonuses that had come to be traditionally received on Wall Street.

Bank of America said it hoped a settlement would avoid a very public dispute with one of its principal regulators and the negative publicity that such a dispute would entail.

Coffee said a settlement could set a bad precedent.

Some statements in the SEC brief are going to haunt the Commission, he said. It is taking the position that if you delegate disclosure to the lawyers, then executives are not responsible. It would lead lawyers to make a virtue out of what could be caused 'negligence.'

Bank of America closed up 2 cents at $17.04 on the New York Stock Exchange. They are down 49 percent since the Merrill purchase was announced last September 15, the same morning that Lehman Brothers Holdings Inc went bankrupt.

The case is SEC v. Bank of America Corp, U.S. District Court, Southern District of New York (Manhattan), No. 09-6829.

(Reporting by Jonathan Stempel and Joe Rauch; Additional reporting by Grant McCool; Editing by Gerald E. McCormick, Andre Grenon, Gary Hill)