A US federal court has dismissed a deal between Bank of America and the Securities and Exchange Commission that would have settled the SEC's complaint that the BoA misled shareholders about its plans to pay Merrill Lynch executives bonuses for 2008 in the run-up to its acquisition of the brokerage.

After twice delaying his ruling on the matter last month, US District Court Judge Jed Rakoff rejected a deal that would have had Bank of America pay $33 million to settle the SEC's charge that the bank told shareholders that it wouldn't be paying bonuses to Merrill executives for their performance in 2008. Last year, Merrill lost $28 billion.

The takeover of Merrill by BoA has created the world’s largest wealth management firm by size, although it is a mostly domestic US player. Internationally, UBS remains the largest wealth manager, although that firm has suffered from losses and been hit in the US by recent legal battles over alleged tax evasion by its clients.

Bank of America ended up paying Merrill executives about $3.6 billion in 2008 performance bonuses, but only said so after the acquisition was completed.

In rejecting the settlement, Judge Rakoff said he wanted to see more accountability in the matter - either from executives of Bank of America and Merrill or from the lawyers themselves, as the SEC says it can't say which executives were responsible because the firms' lawyers drafted the relevant documents and made all the decisions about disclosing the bonuses.

As a result, the SEC must decide if it wants to pursue its case against BoA in court or drop the matter and risk the resulting outcry, according to media reports.

Judge Rakoff seems to have ruled out the option of seeking another cash settlement in the matter.

If the matter goes back to court, it won't be before February 2010.