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NEW YORK (CNNMoney.com) -- A federal judge refused Monday to sign off on Bank of America's $33 million settlement of a Securities and Exchange Commission lawsuit, saying neither side convinced him that the settlement was fair to the public.

U.S. District Court Judge Jed Rakoff gave both Bank of America and the SEC until Aug. 24 to make their arguments that the settlement should be approved or change the terms of the deal.

"I would be less than candid if I didn't express my continued misgivings about this settlement," Rakoff said. "No court can make a ruling without the facts, without the truth. I need to know more before I can approve the settlement."

Rakoff said he will rule on the matter by Sept. 9.

The SEC reached the agreement last week after it filed charges against the bank for allegedly misleading investors about billions of dollars in bonuses paid to Merrill Lynch employees.

Regulators claimed that BofA had said in its proxy statement that it would not pay out bonuses to Merrill employees in fiscal year 2008, when, in fact, the bank authorized bonus payments of as much as $5.8 billion. Of that allowance, $3.6 billion was paid out in 2008 to more than 39,000 Merrill employees, averaging $91,000 per bonus.

Rakoff said he understood BofA's actions to mean the company "effectively lied to their shareholders."

As a result, the judge said it did not appear that the settlement's "punishment" fit the crime.

"Is there not something strangely askew in a fine of $33 million?," Rakoff asked an attorney representing the SEC. "This is a tiny, tiny fraction [of the bonuses]. Why isn't this a grossly unfair amount?"

"If you're correct, then it's very difficult for me to see -- even with the appropriate deference given to the SEC in these situations -- how the [$33 million] is remotely reasonable?" he added.

Rakoff also said he was concerned that the fine would come out of the $20 billion bailout the bank received from the TARP program in January.

Fair or not? Attorneys for both the SEC and Bank of America argued that the settlement was fair.

The SEC representatives said there was some precedent for the fine, noting the government regulator reached a $37 million settlement with Wachovia for a failure to disclose a $500 million stock repurchase program in 2001. An attorney representing Bank of America argued that taxpayer money would not be included in the payment of the settlement.

Merrill's decision to pay big bonuses first came to light in February, after New York state Attorney General Andrew Cuomo accused the firm of "secretly" rewarding executives before its merger with BofA closed.

Who is to blame? Rakoff also said he was concerned that the SEC complaint did not allege that anyone at Bank of America knowingly or intentionally did anything wrong.

When the SEC alleged that the decision lay with corporate merger officials at the two companies, Rakoff questioned how Bank of America Chief Executive Ken Lewis and former Merrill CEO John Thain could be unaware of the misdirection when they themselves signed off on the proxy statement.

"If you are correct that this proxy statement was materially misleading, then at a minimum Mr. Thain and Mr. Lewis would seem to be responsible for that, yes?"

But the SEC argued that Lewis and Thain likely did not know about the bonuses, as they were relying on the advice of their lawyers when they signed the company's proxy statement.

In the end, Rakoff labeled the SEC's filing "a rather uninformative complaint," and said that the two sides had "rather diametric views about that the facts are."

"In a case involving such public interest ... it seems to me that I need a lot more material before I can reach the conclusion that this settlement meets my approval," he said.

Though BofA maintained that the settlement was fair, it said it would cooperate with the judge's order.

"Bank of America continues to believe that the settlement is a constructive conclusion to this issue," a spokesman for the company said in an e-mailed statement. "We intend to provide the judge with the additional information he requested."

The SEC could not be reached for comment.

Unusual settlement. Legal experts say that Rakoff likely wanted to hold up the deal because of peculiarities in the settlement.

"The SEC must have wanted a quick settlement," said John Coffee, professor of law at Columbia University. "Judge Rakoff has done exactly the right thing."

"This was a very unusual settlement, because the SEC usually doesn't allege there are material wrongdoings at a corporation without trying to identify who the culprits were," added Coffee. "Corporations don't tell lies, offices and employees do. We should penalize those people, not the shareholders."

Rakoff has been down this road before. In 2003, he refused to sign off on a $500 million settlement between the SEC and bankrupt telecom giant WorldCom. After the parties were forced to renegotiate the settlement, Rakoff later signed off on a $750 million fine and stock set aside for former investors in the company for when WorldCom emerged from bankruptcy.