The often convoluted, baroquely twisted financial crisis has come to this: The SEC and Bank of America are now partners against a federal judge who has refused to approve their much-publicized settlement. 

Recall that Bank of America agreed to pay $33 million to settle charges that the bank's executives failed to inform shareholders that they had approved massive bonuses at Merrill Lynch. Bank executives seemed to suggest later that they had merely scant knowledge of the bonuses, statements that apparently were contradicted by the evidence. 

The settlement, as is often the case, did not require Bank of America to admit any guilt. Which seemed to rankle U.S. district judge Jed Rakoff. To him, it seems the bank lied to shareholders and isn't being asked to accept any responsibility, according to Reuters. At a minimum, he'd like more transparency. "One might infer that public money was used, in effect, to pay the bonuses," he said. "Don't I need to know what the truth is before I could make a determination here?" And: "Is there not something strangely askew in a fine of $33 million?" 

Given the SEC's view that a proxy was misleading when it said that Merrill had decided not to pay the bonus, Rakoff was quoted: "then at a minimum Mr. Thain and Mr. Lewis would seem to be responsible for that." That would be Merrill CEO John Thain and Bank of America CEO Ken Lewis. The line of questioning left the SEC in the off position of having to defend the CEOs. 

The judge is voicing some arguments that one would think would find a sympathetic audience at the new SEC, which has vowed to get tough on enforcement. Some might be puzzled by the soft treatment. 

Rakoff is certainly not the only critic of the settlement. A blistering commentary in Forbes notes that ultimately Bank of America shareholders are being punished. Their money will be used to pay the settlement. There's plenty of of fodder for public and Congressional outrage here. What people will likely demand is a full accounting and discussion of the logic and theory behind the settlement. - Jim