BofA defends Merrill bonus settlement

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NEW YORK (CNNMoney.com) -- Bank of America defended the fairness of a proposed $33 million settlement it struck with federal regulators over the Merrill Lynch bonus scandal, according to a federal court filing submitted Monday.

The Charlotte, N.C.-based bank, which has been under intense scrutiny for the $3.6 billion in bonus payments made to Merrill executives earlier this year, maintained that the penalty it struck with the Securities and Exchange Commission this month represented a "constructive conclusion" to the situation.

Regulators claimed that Bank of America (BAC, Fortune 500) had said in its proxy statement that it would not pay out bonuses to Merrill employees in fiscal year 2008, when, in fact, the bank authorized bonus payments of as much as $5.8 billion.

Of that allowance, $3.6 billion was paid out to more than 39,000 Merrill employees last year, averaging $91,000 per bonus. Merrill lost billions of dollars in 2008.

In Monday's filing, BofA suggested that investors should have already known about the bonuses given the media attention surrounding the merger after it was first announced last September. In addition, the bank pointed out that Merrill disclosed the size of its bonus pool when it reported financial results earlier that year.

While not admitting any guilt, Bank of America said it decided to settle with the SEC because it did not want to be distracted by a lengthy court battle with one of its main regulators at a time of market uncertainty.

"Had there been no settlement here, and were this case to be litigated to judgment, Bank of America would have powerful defenses to the SEC's claims," the company wrote.

Monday's revelation marks the latest twist in the long and tortuous dispute over bonuses paid to Merrill Lynch employees earlier this year.

Nearly two weeks ago, a federal judge rejected the proposed settlement. U.S. District Court Judge Jed Rakoff, who is overseeing the case, charged that the fine was not appropriate given the magnitude of the offense committed against Bank of America's shareholders.

Rakoff also expressed concern about the SEC's apparent unwillingness to single out any individual at either firm for signing off on the payments, and the possibility that the settlement would be paid using bailout money from U.S. taxpayers.

In a separate filing Monday, the SEC said that the $33 million fine "strikes the right balance between the goals of deterrence and the need to avoid unnecessary harm to existing shareholders."

The SEC added that it did not uncover anything else in its investigation to support charges against specific individuals at Bank of America or Merrill Lynch.

Rakoff is expected to rule on the matter by Sept. 9.