Rakoff wrote that he had serious reservations about the settlement, which will let Bank of America pay $150 million over accusations that it didn't properly disclose billions in bonuses at Merrill Lynch, which Bank of America bought last year. He questioned whether the fine was big enough, and wondered why the SEC chose to charge the bank with negligence rather than the more-serious intent to mislead. Rakoff, a U.S. District Court judge, called the settlement "half-baked justice" and scolded the SEC for appearing content with "modest and misdirected sanctions."

Were he asked to approve the settlement on its merits alone, he added, he would have rejected it.

But, Rakoff added in his Monday ruling, the law requires him to defer substantially to the SEC's judgment, and he said he did not want to abuse his power by imposing his own preferences. He called his ruling an exercise of "self-restraint."

The bank and the SEC said they were pleased the settlement was approved. SEC spokesman John Nester said the $150 million fine was the largest financial penalty ever for violating SEC proxy rules. The fine and other requirements placed on Bank of America send "a strong message that companies must give shareholders all material information about corporate transactions subject to shareholder approval," Nester said.

Rakoff's ruling means the bank and the SEC do not have to go to trial next week. But Bank of America still faces Merrill-related charges from New York Attorney General Andrew Cuomo, as well as private lawsuits from shareholders who feel they were misled into voting for the Merrill deal.

Bank of America and the SEC have been fighting for months over whether the bank properly informed shareholders about $3.6 billion in bonuses that Merrill paid to its employees in late 2008, a year in which Merrill lost nearly $30 billion. Bank of America, which bought Merrill last year, has said it did nothing wrong, because shareholders should have been able to determine from the proxy and other regulatory filings that bonuses would be paid.

Rakoff disagreed, saying that Bank of America failed to adequately disclose the bonuses and Merrill's mounting losses.

He also scolded the SEC, wondering why it alleged only that the bank acted negligently. He noted that Cuomo's office has reached "a more sinister interpretation of what happened," and has accused the bank of willful fraud motivated by "self-interest, greed, hubris, and a palpable sense that the normal rules of fair play did not apply to them." (Rakoff also noted that, "perhaps ironically," the Cuomo investigation is being led by a former SEC official.)

The SEC has said it didn't find evidence to charge the bank with intent to mislead.

Rakoff said he was not making any determinations about whether the SEC or Cuomo's office is offering the correct version of events. Rather, he said, his job was to decide whether the SEC was ignoring evidence. In the end, he decided that the SEC's determinations are "a reasonable conclusion, supported by substantial evidence, that a reasonable regulator could draw."

Rakoff noted the settlement was better than the first version, which the SEC and Bank of America proposed in August. That would have required Bank of America to pay $33 million, without admitting or denying guilt. Rakoff had rejected it.

The new settlement increases the fine to $150 million. Rakoff said this amount was "paltry" compared to the billions in bonuses, but he also noted that the money would be paid to shareholders, who he has said are the victims in this case. The new settlement also requires the bank to agree to some extra governance measures, such as hiring an independent auditor to review its disclosure practices and an independent compensation consultant.

"Given that the apparent working assumption of the Bank's decision-makers and lawyers... was not to disclose information if a rationale could be found for not doing so, the proposed remedial steps should help foster a healthier attitude of 'when in doubt, disclose,'" Rakoff wrote.

While not exactly admitting guilt, Bank of America did have to agree that there is "evidentiary basis" for the SEC's "Statement of Facts" about what happened with the Merrill deal.

Rakoff had suggested that the SEC and the court have a say in who the bank chooses as its independent compensation consultant, since so many consultants have "a skewed focus" of what is appropriate pay. The bank pushed back on this idea and Rakoff agreed to relent, saying the matter was peripheral. But he jabbed the bank for guarding executive pay as a "sacred cow," and said his suggestion was meant to bring "a modicum of objectivity" to the selection.

He also noted how the negotiation of the new settlement has brought more transparency to the Merrill deal, with the bank and SEC turning over reams of documents and depositions.

Rakoff, known for his sharp wit, opened his ruling by saying that the case had a "somewhat tortured background" and quoted the "great American philosopher" Yogi Berra to express his own feelings: "I wish I had an answer to that because I'm getting tired of answering that question."

In a footnote, Rakoff quipped that Berra, the always-quotable baseball great, "has had a notable impact on the development of American law."