Bank of America Corp (BofA) now faces a trial with the US Securities and Exchange Commission (SEC) over billions in bonuses paid at Merrill Lynch, after a judge threw out the bank’s US$33 million settlement and rebuked the agency for not pursuing charges against executives.
The news came as Bank of America executive Anne Finucane prepared to meet yesterday with Representative Edolphus Towns, a Democrat, about BofA’s takeover of the troubled investment bank.
BofA missed a deadline on Monday to turn over details of the hastily arranged acquisition to a congressional committee.
The SEC had accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to US$5.8 billion in bonuses to its employees last year even though the investment bank lost US$27.6 billion that year. BofA had agreed to pay US$33 million to settle the charges without admitting or denying wrongdoing, saying it didn’t violate disclosure rules but wanted to avoid litigation with the SEC at a time of market uncertainty.
But US District Judge Jed Rakoff last week called the proposed settlement a breach of “justice and morality,” and ordered a trial. He questioned why individual executives at Bank of America weren’t charged, and said the settlement unfairly penalized shareholders.
“The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth,” Rakoff wrote in his ruling.
Both the SEC and BofA have defended the earlier settlement proposal as appropriate. But after Rakoff’s ruling, the agency weighed its options, either to go to trial or attempt to renegotiate the accord with Bank of America.
On Monday, the SEC said it will “vigorously pursue” its case against Bank of America, adding that it could seek to bring additional charges if supported by the record of evidence that develops in the trial — meaning it could charge individual executives.
BofA spokesman Scott Silvestri said the bank’s position “continues to be that the [disclosure document] met all legal requirements.”
“We intend to vigorously defend ourselves in court,” Silvestri said in a statement.
Meanwhile, BofA missed a noon deadline on Monday to provide additional information about the Merrill Lynch deal to a congressional committee.
Towns, chairman of House Committee on Oversight and Government Reform, told the bank in a letter Friday that it was hiding behind attorney-client privilege, which Congress can refuse to recognize during its investigations.
Silvestri declined to comment on whether or not the bank met the deadline, but said Finucane, a member of BofA’s executive management team, would meet with Towns to discuss the matter.
Separately on Monday, Bank of America agreed to pay US$425 million to government agencies, including the Treasury Department, to exit an arrangement under which public funds might have been used to shoulder losses on US$118 billion in risky assets from the Merrill Lynch takeover. The option was never used, but the government has argued that the bank benefited from the promise of protection.
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