This is a rush transcript from "On the Record," August 26, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Did somebody do something really shady, hide something from you?

This is what we know. Bank of America took $45 billion of your money in the bailout. Bank of America then bought Merrill Lynch this winter. Merrill lynch was going under when it was bought, but its executives were rewarded big time. They got $3.6 billion in bonuses.

Now, here is the shady part. Bank of America is shareholders were not told of the $3.6 billion in bonuses paid to Merrill Lynch executives. Bank of America then got exposed. The SEC jumped into it, hit Bank of America with a civil suit, and now that suit might get settled for $33 million.

But a federal judge is saying not so fast. He wants to know whose idea it was to hide the bonuses.

Joining us live is Louise Story, Wall Street reporter for the "New York Times." And Louise, it was your story during that caught my attention. Who is hiding the money from the shareholders? Who is responsible for that?

LOUISE STORY, WALL STREET REPORTER, "NEW YORK TIMES": That's what we don't know, but you've got this judge in New York who is well-known for proving the settlement with WorldCom a few years ago who is looking for some answers.

VAN SUSTEREN: What is the excuse the bank is giving? Why does the bank to say, okay -- the judge wants to know, OK, who sort of hid this from the shareholders and thought it would be OK to do it? What is the bank saying?

STORY: Really, what is interesting is what the SEC says. The SEC has told the judge that the bank told them that they relied on their lawyers advice. So essentially what we're saying is kind of a blame the lawyer scenario.

VAN SUSTEREN: Now, with blame the lawyers, you say in your piece is that Watt, Gallipton (ph), Rosenkatz (ph) is one firm, Sherman and Sterling is the other firm. Are they willing to say who did it, who is hiding this from the shareholders?

STORY: I contacted them both, and they haven't replied for comment. There is this saying in law where there is attorney-client, so right now they are not speaking.

The real question though we are waiting to see is whether attorney- client privilege will be waived here, and if these lawyers will be called in to testify and provide documentation of what was going on inside Bank of America.

VAN SUSTEREN: All right, I read in your "The New York Times" article that the judge said why -- why doesn't the bank has waived the attorney client privilege so the lawyers can then answer up to this question -- were they the ones responsible for hiding this from the shareholders?

STORY: That's right. Bank of America has asserted there are 550 pages of privileged documents that they do not want the SEC to review, and they are relying on attorney-client privilege.

What the judge is questioning, and it's a nuanced argument, but he's saying, look, Bank of America, you've told the SEC that you relied on your lawyers' advice. You may have waived attorney-client privilege by doing so.

Those documents may be turned over. We may learn a lot more information about why the bonuses and maybe even some other aspects of the merger were not disclosed.

VAN SUSTEREN: Here is why after reading your story I was hoping that the judge would not accept the settlement and force the SEC and the banks - - Bank of America pays $3.6 billion to the Merrill Lynch executives. We do not know if that came from the bailout, where that money came from. And now the shareholders have to pay that.

Then the SEC gets in and slaps them with a $33 million fee. Again, the shareholders have to pay that $33 million penalty if the judge OKs it.

And then on top of it, the shareholders have to pay the attorneys fees for the law firms who may have created this problem. So they paid $3.6 billion, $33 million, and attorneys fees. This judge must be serious.

STORY: The judge is definitely asking a lot of questions about why executives are not being called to be responsible, and even yesterday wondered why the lawyers were not being responsible.

Or was any injustice done here, it was done to shareholders. And the judge is questioning whether the shareholders are really the ones who should be paying the fines.

Remember Greta, because there is bailout money and Bank of America, taxpayers are shareholders of Bank of America. So this is really a public interest issue.

VAN SUSTEREN: Indeed, it is. It is a great story that you wrote in "The New York Times." I loved reading it, and I hope you follow bonnets. Thank you, Louise.

STORY: Thank you.


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