Likening the actions of the federal Securities and Exchange Commission [3] (SEC) to those of Oscar Wilde's famous cynic "who knows the price of everything and the value of nothing," New York Federal Judge Jed Rakoff tossed an SEC settlement with Bank of America [4] (BofA) out of court yesterday and ordered the parties to ready for trial. (Link to decision here [5].)

As reported previously [6], the court was weighing the appropriateness of a $33 million fine the SEC levied against BofA for failing to notify shareholders about a massive bonus package paid to Merrill Lynch [7] executives when BofA acquired Merrill in September of 2008.

Because it failed to fully disclose the bonuses as required by law, BofA was fined by the SEC [8]. But Rakoff delved into more fundamental questions. Merrill had just lost $27 billion and was on the rocks. BofA was given $40 billion in taxpayer funds to acquire Merrill and help cover the firm's losses. So where did the bonus bucks come from? As Rakoff put it: "To say now that the $33 million does not come directly from U.S. funds is simply to ignore the overall economics of the Bank's situation."

The SEC's $33 million fine was less than 1% of the 3.6 billion provided by taxpayers. Rakoff ruled that the fine "does not comport with the most elementary notions of justice and morality." In addition, he slammed the SEC for not getting to the bottom of the matter by investigating who precisely was responsible for the bonus bonanza.

Rakoff characterized the settlement as "unfair," "inadequate" and "unreasonable." One year after the collapse of investment banking behemoths threw the economy into crisis, the case raises profound questions about why so few Wall Street titans have been indicted and the continuing lethargy shown by the top cops charged with policing the market.

In an address to Wall Street [9] yesterday, President Obama said "we will not go back to the days of reckless behavior and unchecked excesses." However, it is clear that federal regulators are still failing to act and in this instance the SEC preferred to give Ken Lewis, the CEO of BofA, a slap on the wrist rather than to delve into the details.

A harsh spotlight has been thrown on the SEC this year because of its abject failure to pursue dozens of red flags raised about ponzi-scheme king Bernie Madoff. Tapes were recently released by ABC News [10] showing Madoff coaching witnesses on how easy it was to fool investigators at the SEC. "You don't have to be too brilliant with these guys," says Bernie.

While the new administration inherited the calcified SEC from the Bush team, the clock is ticking. A year out, shamefully few prosecutions of banksters have moved forward either at the federal or state levels. To many this illustrates the desperate need for a new cop on the block. Such an entity has been proposed by Harvard law professor Elizabeth Warren and embraced by President Obama [11] in the form of a Consumer Financial Protection Agency [12].

However, SEC chair Mary Shapiro continues to fight the proposal. "I would question pretty profoundly any model that would try to move investor protection functions out of the Securities and Exchange Commission," Shapiro told reporters [13]. "Investor protection is woven through everything that happens in this organization."

While Oscar Wilde may have provided the best critique of Shapiro's shop, this is not play-acting. Shapiro needs to weave a new pattern at the SEC or get out of the way.

Mary Bottari [14] is the director of the Real Economy Project [15] to be launched by the Center for Media and Democracy [16] in September, 2009.