SEC Charges BofA for Merrill Bonuses

The US Securities and Exchange Commission (SEC) will aggressively pursue a trial against Bank of America Corp. (BAC) for allegedly misleading investors during the acquisition of Merrill Lynch & Co. late last year. The SEC accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses to employees in 2008 even after it lost $27.6 billion that year.

Last month, the SEC and BofA had reached a settlement on the charges that required the bank to pay a $33 million fine. But US District Judge Jed Rakoff condemned the deal, saying the corporate fine would further unfairly penalize the shareholders instead of the people actually guilty of misleading investors.

Both the SEC and BofA have defended the earlier settlement proposal as appropriate. But after Rakoff's ruling, the SEC weighed its options - to go to trial, drop the charges or attempt to renegotiate the deal with BofA.

The SEC also said that it could bring additional charges against BofA on the basis of evidence that might develop in course of the trial. This indicates that regulators may draft civil fraud charges against top bank executives in the coming weeks.

Bank of America, however, continues to defend itself by proclaiming that disclosures on the Merrill deal met all legal requirements. The bank had earlier agreed to pay a fine to avoid legal hassles with the SEC at a time of market uncertainty.

The SEC lawsuit comes as an added blow to Bank of America. The New York Attorney General's office is carrying out its own investigation into the Merrill deal and has been drafting what are likely to be civil fraud charges against top bank executives in the coming weeks. The bank also missed a Monday noon deadline to provide additional information about the deal to a congressional committee.

Separately, Bank of America agreed to pay $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 risky assets worth $118 billion associated with the Merrill takeover.

This step was part of the bank’s broader effort to loosen various forms of government support. While the option was never used, the government has argued that the bank benefited from the promise of protection.BofA has been one of the largest beneficiaries of the federal bailout program, receiving $45 billion from a total of the $700 billion.

Bank of America did overpay for Merrill but the deal makes strategic sense now. BofA gained a global investment-banking platform, profitable retail brokerage addition and significant equity-underwriting capacity, all of which it lacked earlier. For the first half of 2009, Merrill contributed $1.84 billion.

We anticipate continued synergies from the company’s large scale operation and balance sheet restructuring. However, higher credit costs, various legal issues and worsening credit quality will be a drag on BofA’s upcoming results. As such, we are maintaining a Neutral recommendation on the stock.

Comments

[jstratt:]

Thank god for Judge Rakoff!

The SEC is supposed to serve a great purpose of maintaining a set of free and fair markets. It has deserted its purpose in a treasonous manner.

It is managed by a disgusting set of leaders that need to be expunged, its political overseers need to be expunged and integrity needs to be restored.

The proper penalty for BAC is to pay back the government with an appropriate return added. Merrill Lynch should be seperated and sold off. Finally Ken Lewis and the entire board needs to be removed.

When fraud and graft is accepted in a BAC like manner, the US has downgraded itself to a 3rd world country that cannot be trusted.

Sep 24 07:17 PM

[Rong:]

So for the first half of 09, Merrill contributed 1.8 B; that aint much after paying 5.8 B in employee bonuses for the previous year.

Sep 24 10:17 PM

[Donald Duck:]

The thieves at the SEC are in bed with the thieves at the big banks. It is institutionalized corruption at the SEC and power politics at the banks who own the politicians in Washington. SHAME!

Sep 25 02:45 AM

[billd10:]

First, the Treasury forced BofA into buying Merrill, just as they did with JP Morgan and Bear Stearns, now, they are suing them because the CEO should have discouraged the shareholders from going ahead with the deal. What a bunch of hypocrites--and these are the people we should trust with our healthcare? The federal government mis-manages just about everything they get their hands on.

Sep 25 11:30 AM

[HBWOW:]

SEC compounding fraud on top of the FED fraud on top B of A/Lewis's
fraud on top of Merrill fraud on top of Merrill insiders' fraud - get the full
picture. The insiders should be made to pay back these "bonuses"
(I thought bonuses were only paid from excessive profits not huge
orchestrated losses). The stockholders via stock losses and the general public via future taxes to pay back TARP get screwed AGAIN.
Is this all part of a plan??

Sep 25 11:44 AM

[jackooo:]

First the SEC confirms the money award BOA is to pay and now they are suing BOA? What hypocrites!!
Where is Obama when you need him?

Sep 25 01:35 PM