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Test the bonuses Payouts to Wall Street executives deserve scrutiny of a day in court

On the anniversary of the Lehman Brothers Holdings bankruptcy court filing and the emergency government rescue of American International Group comes an unprecedented turn of events: A federal judge has decided to toss out the Securities and Exchange Commission's proposed settlement with Bank of America over controversial bonuses it paid to Merrill Lynch employees.

Perhaps, as President Obama urged in a message to Wall Street, the industry now will be pushed into voluntarily reforming itself, and will not try to block new laws meant to prevent the recession-triggering excesses of the past from returning.

At the very least, those excesses should not go unnoticed by the general public -- which, in turn, should keep up pressure on elected officials to pass legislation that will lead to heavier sanctions on company executives who would use public shareholder money to pay themselves handsome rewards.

But therein lies a problem with the SEC's $33 million fine levied against the Bank of America. U.S. District Judge Jed Rakoff concluded that it "does not comport with the most elementary notions of justice and morality because the company's shareholders -- the victims of the alleged misconduct -- are the same people being asked to pay the fine."

So now the issue goes to trial. It's about time.

The SEC is supposed to work diligently in the best interests of the public, but it has been blamed for huge missteps, including missing the Bernie Madoff debacle despite repeated warnings and red flags.

In most SEC investigations, companies may want to dismiss the entire matter by paying whatever settlement is agreed upon and moving on. But in this case, not only is a high-profile complaint being forced into court on Feb. 1, but State Attorney General Andrew M. Cuomo's office is also preparing to file charges within a few weeks against several high-ranking executives at the bank. Cuomo's office is claiming they failed to disclose details about the bank's acquisition of Merrill Lynch, according to reports from a person familiar with the investigation.

It would be naive to think that the age of the excess on Wall Street is forever gone. But it wouldn't be too much to expect a closer look when agencies fail to act appropriately after companies ignore the fiscal realities that impact shareholders.

Those bonuses were nothing short of an outrage, and taxpayers footing the bill for an unprecedented bailout of the industry weren't shy about expressing their anger. Bank of America, which agreed to purchase the New York investment bank, has been found at fault by the SEC for misleading shareholders into thinking no bonuses would be paid. However, the SEC declined to sue the bank.

The bank says it did nothing wrong. Now, the SEC could appeal the judge's decision, drop the case, head to trial against the bank or pursue charges against individuals. Send this one to court.

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