BofA-SEC Judge Won't Stop Until He Has Names

NEW YORK (TheStreet) -- Judge Jed Rakoff seems to have become the arbiter of common sense in the Merrill Lynch bonus scandal, filling a regulatory void and helping to mollify shareholder rage.

Judge Rakoff also represents a thorn in the side of Bank of America (BAC) and its regulators.

At issue are $5.8 billion in bonuses that Merrill distributed at year-end ahead of the merger. Merrill's financial condition was deteriorating, eventually resulting in a $15 billion fourth-quarter loss and requiring BofA to take on another $20 billion loan from the government.

BofA management and an assortment of regulators -- including former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke -- apparently knew about the rewards and the losses, or at least were able to learn of them since they had access to relevant documents.

Shareholders did not.

Typically, a company would not have to report information on such a minute level, especially regarding actions taken before a merger was sealed. However, companies must disclose any information that is "material" -- anything shareholders would need to know in deciding whether to approve the merger. One could argue that the bonuses -- and the losses - were that important, considering that once shareholders knew more about the Merrill deal, they stripped BofA CEO Ken Lewis of his chairmanship.

The SEC, in an attempt to restore its own credibility, slapped Bank of America with a $33 million settlement for the way the disclosures were handled. No one has admitted to doing anything wrong.