US bank bonus case to go to trial

A US federal judge has rejected a $33m (£20m) settlement between Bank of America and its regulator, the Securities and Exchange Commission.

Bank of America saved Merrill Lynch from collapse a year ago after telling shareholders no bonuses would be paid to executives without their approval.

But $3.6bn was paid in bonuses to Merrill executives, before the deal was closed, despite Merrill's huge losses.

The judge threw out the settlement and ordered a trial to begin on 1 February.

The settlement "cannot remotely be called fair", District Judge Jed Rakoff ruled.

Bail-out funds

Bank of America has neither admitted nor denied the allegations of the Securities and Exchange Commission (SEC).

It was one of the biggest recipients of bail-out funds from the US taxpayer in 2008, needing capital injections at the height of the financial crisis.

The bonuses were made for 2008 in spite of Merrill Lynch losing $27.6bn that year.

The SEC announced last month that it had settled its civil case with Bank of America, but Judge Rakoff decided not to approve the settlement and instead asked the SEC to explain why it had not pursued charges against specific executives.

He received the additional statements from the SEC last week and has now ruled that a full trial will be needed.

Judge Rakoff found that the settlement "suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators".

"All this is done at the expense, not only of the shareholders, but also of the truth," the judgement concluded.

It is also reported that the New York Attorney General Andrew Cuomo's office is close to a decision on whether to file charges against executives at Bank of America for withholding information from shareholders.

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