Bank of America Corp
U.S. District Judge Jed Rakoff approved the accord on Monday but also sharply criticized it, calling the settlement half-baked justice at best.
The judge may have given new ammunition for the many other lawsuits against Bank of America over the merger, including by New York Attorney General Andrew Cuomo.
Rakoff said it was clear the bank, prior to a shareholder vote on the Merrill deal, failed to adequately disclose the scope of Merrill's historically great losses, and failed to disclose that it had authorized Merrill to pay as much as $5.8 billion of bonuses.
Bank of America and Cuomo did not immediately respond to requests for comment. The SEC had no immediate comment.
Rakoff's approval requires the SEC and Bank of America to file a revised document by Thursday reflecting their understanding of the settlement's terms.
The settlement ends two lawsuits by the SEC against Bank of America. One alleged that the bank misled shareholders about the bonus payouts, which ultimately totaled $3.6 billion. The other alleged that the bank misled shareholders about Merrill's losses, which reached $15.8 billion in the fourth quarter of 2008.
Had Rakoff rejected the settlement, a trial over the bonuses would have begun on March 1. The judge in September rejected a $33 million accord over the bonuses, faulting the SEC for accepting a lenient penalty that failed to hold individuals responsible.
Rakoff said that on the merits, he would have rejected the latest settlement as inadequate and misguided because the $150 million fine effectively penalizes the shareholders for what was, in effect if not in intent, a fraud by management on the shareholders. He called the fine modest.
But the judge said the law required him to give substantial deference to the SEC.
Criticizing the settlement, he wrote: Its greatest defect is that it advocates very modest punitive, compensatory, and remedial measures that are neither directed at the specific individuals responsible for the nondisclosures nor appear likely to have more than a very modest impact on corporate practices or victim compensation.
He added: While better than nothing, this is half-baked justice at best.
Cuomo on February 4 sued the bank, its former chief executive, Kenneth Lewis, and its former chief financial officer, Joe Price, who now oversees consumer and small business banking.
That lawsuit sets forth a significantly different set of facts: that the bank knew or should have known how fast Merrill's losses were rising, yet did not tell shareholders.
Cuomo also contends that the bank, in mid-December 2008 talks with the government, used an empty threat of backing out of the merger as leverage to get taxpayer aid.
The bank has said the government essentially forced it to close the deal, or else risk imperiling Merrill and the financial system. Bank of America ultimately received $20 billion of federal bailout money, which it has since repaid.
Rakoff said the case reminded him of a comment by a Hall of Fame baseball player whose musings have long provided fodder in non-baseball contexts.
Given the somewhat tortured background of these cases and the difficulties the motion presents, Rakoff wrote, the court is tempted to quote the great American philosopher Yogi Berra: 'I wish I had an answer to that because I'm getting tired of answering that question.'
Shares of Bank of America rose 30 cents, or 1.9 percent, to $16.18 in midday trading on the New York Stock Exchange.
The cases are SEC v. Bank of America Corp, U.S. District Court, Southern District of New York, Nos. 09-06829 and 10-00215.
(Reporting by Grant McCool and Jonathan Stempel in New York; Joe Rauch in Charlotte, North Carolina, and Dan Margolies in Washington, D.C.; editing by John Wallace)