Last week I was stumped by the weak press coverage (with one notable exception, at The Wall Street Journal) of a $33 million SEC settlement with Bank of America for lying to its shareholders about $3.6 billion in Merrill Lynch bonuses.

Apparently, Judge Jed S. Rakoff was, too. He’s the guy who has to approve the deal, and he’s not inclined to do so. Not yet. It seems Judge Rakoff wants to actually know what happened!

The major financial papers all give the story pretty good run today with section-front stories from the Journal and The New York Times. The NYT’s is the best, putting us inside the courtroom with a sense of discovery that we’ve found a public official with common sense:

Bank of America and Merrill Lynch, Judge Rakoff said, “effectively lied to their shareholders.” The $3.6 billion in bonuses paid by Merrill as the ailing brokerage giant was taken over by the bank was effectively “from Uncle Sam.”

The Merrill bonuses, which were the subject of a state investigation and prompted an outcry in Congress, were paid even though Merrill Lynch lost $27 billion last year. Its deepening red ink later forced Bank of America to seek a second taxpayer-financed bailout

“Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?” the judge asked.

The biggest criticism some of us had, but which initial press coverage largely skipped over, was the fact that the $33 million fine was so small compared to the $3.6 billion in bonuses paid. The Times’s Louise Story notes sharply that one Merrill employee got a bonus bigger than the fine.

The judge even shot down the old rope-a-dope argument that “we didn’t pay it out of our government money,” noting that money is fungible.

Here’s how the FT analyzed the news:

The judge’s decision is embarrassing to the SEC, which was forced to defend a $33m settlement that Mr Rakoff suggested was too small if the underlying conduct was actually as described.

It’s also embarrassing for the Journal, since its story is packaged with a beat sweetener about how the SEC is on the march, newly aggressive, etc. etc. under the leadership of Mary Schapiro and enforcement chief Robert Khuzami, and has issued “stiff penalties” against the like of Bank of America.

Bad timing on that one!

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.