Federal Judge Takes a Stand in Bank of America-Merrill Lynch Bonus Scandal

This is a rush transcript from "On the Record," September 16, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: There is big news tonight in a case we have followed here at "On the Record."

Here's what we know -- you gave Bank of America $45 billion for bailout. This winter, Bank of America bought Merrill Lynch. Merrill was going under when it was bought, but its executives were given $3.6 billion in bonuses.

Now, here is where it gets shady. Someone hid the fact of $3.6 billion in bonuses from the shareholders. That's crooked. The SEC in bonuses and worked on a cozy agreement with Bank of America where the bank was given only a civil fine, and the real culprits, they got off the hook.

And that's where a very bold federal judge stepped in and stopped this cozy soup, saying it does not comport with the most elementary notions of justice and morality.

And there is more tonight. The New York attorney general's opinion. Joining us live is Louise Story, Wall Street reporter for "The New York Times."

And Louise, I know you want to take credit for this, but you are pending on the story, and that Judge Rakoff, to see your story in the "New York Times" every day. But what an interesting turn of events.

LOUISE STORY, "NEW YORK TIMES": It is interesting. But Judge Rakoff is someone who has often taken stances on things. And people who have watched them for a while said that as soon as these that he was having a hearing on this, they knew that was going to be something different here and that was going to take a stand.

VAN SUSTEREN: I am delighted that a federal judge would did this. A lot of times it just sort of rubberstamp what the government has done.

STORY: Absolutely.

VAN SUSTEREN: He's not rubberstamping this.

STORY: No, that is not the way he does things.

VAN SUSTEREN: Is he demanding by throwing this civil penalty out between the SEC and Bank of America, is he demanding to find out who is responsible?

STORY: He is looking for accountability. He's looking to know who made the decision not to disclose the bonuses. In fact, he is asked Bank of America and the SEC that in many things in the past month, and they haven't.

And he criticized Bank of America's filing this week for not answering his questions.

VAN SUSTEREN: Why did they say they were not going to answer them?

STORY: They didn't give a reason.

VAN SUSTEREN: No reason. Well, they are going to end up giving one.

STORY: If they go to court, they may have to give a reason.

VAN SUSTEREN: And the thing that's so appalling is that not only is there the taxpayer bailout, but then the bonuses are paid by the shareholders, and they didn't know it because it was hidden from them. Then this $30 million fee that they thought they would get away with.

Again, the shareholders are paying for, and they are paying the legal fees on top of it.

STORY: So that's what the judge has really criticized. He said, the victims of this would be the shareholders. And he says so it doesn't make sense for the shareholders to pay the fine to settle the case.

The very flagrantly wrote this looks like management to escape their lie by having shareholders pay the fine to get them out of it. So he was very critical of that, and it raises questions about the way the SEC does a lot of these settlements.

VAN SUSTEREN: I am suspicious of the law firms are representing them at the time of this merger. Who represented Bank of America?

STORY: Wachtell, Lipton. They are in New York.

VAN SUSTEREN: And who represented Merrill Lynch at the time?

STORY: Sherman and Sterling.

VAN SUSTEREN: And neither side, at least as far as we know, neither side of lawyers said, "You cannot hide these bonuses from the shareholders"?

STORY: We do not what they said.

VAN SUSTEREN: They are not stepping forward and saying we told them.

STORY: No, they're not. They want attention on this one.

VAN SUSTEREN: The lawyers may end up having to tell, because this judge seems to be on a tear. He wants the truth.

STORY: He wants the truth, and he as well as the attorney general in New York have raised questions about why the lawyers are not answering questions. They want answers from Bank of America's internal lawyers as well as its external lawyers.

VAN SUSTEREN: Well, Louise, great job. I love your stories, and welcome to Washington.

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