Sept. 17 (Bloomberg) -- Jed Rakoff, the federal judge who rejected a $33 million settlement between the Securities and Exchange Commission and Bank of America Corp. over Merrill Lynch & Co. bonuses, is a stickler for fairness and transparency.

His ruling this week in the Bank of America case came six years after he pressured WorldCom Inc. to pay an extra $250 million after investors criticized a proposed $500 million settlement of an SEC lawsuit as inadequate. Before that, he struck down the federal death penalty in a case before him. The U.S. Justice Department appealed that ruling and won.

The bonus ruling by Rakoff, who will preside over a Feb. 1 trial of the case, may spur changes in how the SEC does its job. His rejection of the Bank of America settlement challenged an agency practice of having shareholders pay to settle allegations of wrongdoing against executives who manage their companies. Lee Ginsberg, a New York defense attorney who was involved in the death-penalty case, said Rakoff has a record of exposing an issue of public importance and pushing for a solution.

“What he’s seeing here is some kind of fundamental unfairness,” Ginsberg said. “He wants everything to be made clear to the public about how this matter evolved and got to the resolution proposed. He wants transparency and responsibility.”

Gregory Diskant, the chairman of New York law firm Patterson Belknap Webb & Tyler LLP and a longtime friend of the judge, said there’s been a consistent theme in Rakoff’s rulings: “Making sure that public institutions behave appropriately and private institutions behave properly.”

Bank of America Suit

The SEC sued Bank of America last month for misleading investors in a November proxy statement. The proxy said that Merrill, which the Charlotte, North Carolina-based bank was acquiring, had agreed not to pay year-end bonuses without the bank’s consent. Instead, Bank of America secretly allowed Merrill to pay as much as $5.8 billion in bonuses, the SEC said.

Bank of America and the regulator entered into a $33 million settlement that Rakoff immediately challenged as inadequate. In his Sept. 14 opinion, he simultaneously assailed the regulators and the bank, ordering the case go to trial. In other cases, the SEC has sued companies and their executives.

“The parties’ submissions, when carefully read, leave the distinct impression that the proposed consent judgment was a contrivance designed to provide the SEC with the façade of enforcement and the management of the bank with a quick resolution of an embarrassing inquiry,” Rakoff said.

Columbia University law professor John Coffee said Rakoff is neither the Sheriff of Wall Street nor an investor advocate. During his career, he has issued rulings that were “hostile to Wall Street” and “hostile to the plaintiffs’ bar” that sues Wall Street.

‘Cautious, Mainstream’

“He’s a cautious, mainstream judge who stays within the case law,” Coffee said in an interview.

A Philadelphia native, Jed Saul Rakoff, 66, has served on the bench since 1996, following his appointment by President Clinton. A graduate of Swarthmore College and Harvard Law School, he previously worked as chief of the fraud division in the Manhattan U.S. Attorney’s Office and as an attorney with New York law firms.

At Fried Frank Harris Shriver & Jacobson LLP, he built a reputation as one of the top securities lawyers in the country, said Anthony Sabino, a business-law professor at St. John’s University in New York. Rakoff scored a big victory in his defense of Security Pacific National Bank in a fraud suit over loan participations sold by the bank. A judge dismissed the case.

“If you needed a heavy hitter, he was on the short list,” Sabino said.

Professor Rakoff

Today, Rakoff, who declined to be interviewed, runs his courtroom like the legal class on white-collar crime he teaches with Coffee. He peppers lawyers with questions, and arguments may run for hours. The son of a high school English teacher, the judge routinely writes colorful legal opinions, such as his quotation of Oscar Wilde’s definition of a cynic in his Bank of America ruling.

“‘Put it in writing’ is the law’s way of saying ‘get serious,’” Rakoff wrote in a decision last month. The remark came as he rejected claims by American International Group Inc. that a firm run by its former chief executive officer, Maurice “Hank” Greenberg, was wrong to sell $4.3 billion of AIG stock. The case centered on an alleged oral contract.

“Oral commitments are just too slippery to be enforced,” Rakoff wrote.

Of the widely used federal mail fraud statute, the basis of most securities fraud prosecutions, Rakoff wrote in a 1980 law review article that it was the prosecutors’ “Stradivarius, our Colt .45, our Louisville Slugger, our Cuisinart -- and our true love.”

Wields Gavel

Rakoff doesn’t hesitate to wield his gavel. This year alone, he has assailed law firms that represent investors for their practice of monitoring retirement-fund portfolios to find grounds for securities-fraud lawsuits. He said the practice, which monitors stock-price drops, may lead to frivolous lawsuits. Rakoff also ordered prosecutors to unseal wiretap applications that were part of a probe of ex-New York Governor Eliot Spitzer. An appeals court reversed that ruling.

Ginsberg, the death-penalty lawyer, said Rakoff won’t hesitate to force the lawyers in a case to delve into an issue or concern he deems important. Not every judge will do that.

“He gets it, he gets it quickly, and he forces the parties to focus on what’s important,” Ginsberg said.

Even with this hard line, Rakoff has shown sympathy for those accused of corporate wrongs.

‘The Madding Crowd’

In a 2006 case in which U.S. sentencing guidelines recommended a life sentence, Rakoff ordered Richard Adelson, the ex-president of Impath Inc., to serve 3 1/2 years in prison for a $260 million fraud. This month, Rakoff imposed a two-year term on James Treacy, the former Monster Worldwide Inc. chief operating officer, for backdating stock options. Prosecutors sought a 34-year sentence. Treacy wanted probation.

Manhattan defense lawyer Gerald Shargel said Rakoff turned aside “the cries of the madding crowd” in his July sentencing of New York law firm founder Marc Dreier, who got 20 years for defrauding hedge funds of more than $400 million. Prosecutors wanted a life sentence.

In civil cases, Rakoff has dismissed or narrowed lawsuits against banks or companies when he believed the facts warranted it, as he did in 2004 when he said a case against Lehman Brothers Holdings Inc. over biased research wouldn’t proceed as a group suit.

Texaco Ruling

Rakoff made a bad decision in a case against Texaco Inc., in the view of Cristobal Bonifaz, who represented South American Indians suing the energy company for polluting the Amazon rain forest. Rakoff dismissed the case in 2001 after finding it should be heard in Ecuador.

Last month, Chevron Corp., which now owns Texaco, alleged that the Ecuadorean judge overseeing the $27 billion lawsuit was involved in a bribery scheme against the company.

“The case is in limbo again,” Bonifaz said in an interview. Of Rakoff’s decision to dismiss, Bonifaz said, “The little guy got screwed here.”

At one point, Bonifaz accused Rakoff of breaching conflict- of-interest rules by attending a conference at a Montana resort where a former Texaco chairman was a speaker. The judge’s expenses for the conference were paid by the host of the event, a business-backed group to which Texaco contributed. A U.S. appeals court said in 2001 that Rakoff did nothing wrong and needn’t disqualify himself from the case.

In an e-mailed statement, Rakoff called the allegations “utterly scurrilous” and “materially false.”

Coffee said Rakoff would never breach ethical rules.

“He’s a marvel of integrity and probity,” Coffee said.

The case is Securities and Exchange Commission v. Bank of America Corp., 09-cv-06829, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: September 17, 2009 11:53 EDT