A federal judge Tuesday ordered the Securities and Exchange Commission to explain why it did not pursue allegations that Bank of America Corp. executives lied in a proxy statement about bonuses for Merrill Lynch employees.

The SEC said it could not investigate the bank executives' culpability because they said they had relied on their lawyers' advice, and without the bank giving up its private discussions with its lawyers, the SEC could not build a case.

U.S. District Judge Jed S. Rakoff called this reasoning "at war with common sense." If that were the regulator's policy, "it would seem that all a corporate officer who has produced a false proxy statement need offer by way of defense is that he or she relied on counsel, and, if the company does not waive the privilege, the assertion will never be tested, and the culpability of both the corporate officer and the company counsel will remain beyond scrutiny."

The SEC and B of A have asked the judge in federal district court in New York to approve a $33 million consent decree settling the issue.

In the order Tuesday, Rakoff said that the initial filings raised issues that the SEC and the company must address them in their final submissions, due Sept. 9.

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