A U.S. District Court judge on Monday approved the Security and Exchange Commission's proposed $150 million settlement with Bank of America (BAC) stemming from charges that the company failed to disclose employee bonuses and financial losses at Merrill Lynch before the two firms merged in December 2008. The judge, however, scolded the SEC, criticizing its settlement offer as "half-baked justice at best." He also ordered that settlement money in the case should go to BofA's legacy shareholders -- those who owned stock prior to the merger -- reasoning that they were most harmed.The settlement ends the government's pursuit of BofA regarding questions about information it may have withheld concerning Merrill's losses and bank bonuses prior to the merger, but it doesn't protect the bank from other lawsuits. Judge Jed Rakoff found that the bank failed to disclose information about the bonuses and losses, but he said the evidence could not prove the oversight was willful.

Merrill Lynch reported losses of $27.6 billion for 2008 and paid out $3.6 billion in bonuses shortly before the merger closed.

The New York Times reported that the judge called the $150 million settlement amount "paltry," but reluctantly conceded that it had met the minimum requirement for approval. "This court, while shaking its head, grants the SEC's motion and approves the proposed consent judgment," Rakoff wrote.

He had rejected the SEC's previous settlement offer of $33 million made last August, which resulted in the increase to $150 million. Had Rakoff rejected the revised settlement, it would have resulted in a March 1 trial.

"Despite the bank's somewhat coy refusal to concede the materiality of these nondisclosures, it seems obvious that a prudent bank shareholder would have thought twice about approving the merger or might have sought its renegotiation," the judge wrote.

BofA has denied any wrongdoing from the start, but many expect Judge Rakoff's decision to be used against it in future lawsuits. Shareholders are expected to file suits, and New York Attorney General Andrew Cuomo is currently suing the bank for fraud.

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