Bank of America

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BofA admits using "repo 105"

Bank of America Corp. admitted to making six transactions that incorrectly hid from view billions of dollars of debt, following a bid to cut the size of a unit's balance sheet and meet internal financial targets.

The disclosure, made in a letter to the Securities and Exchange Commission, comes as the agency prepares to unveil the results of an inquiry into banks' accounting for borrowing deals known as repurchase agreements, or "repos."

BofA's letter was sent in April in response to the inquiry, but this is the first time the details of the six trades in question have been disclosed. The bank had acknowledged in its last quarterly report that its accounting for the transactions, made at the ends of quarters from 2007 to 2009, was incorrect.

The bank's disclosure also suggests the trades may be an example of end-of-quarter "window dressing" on Wall Street, in which banks temporarily shed debt just before reporting their finances to the public. The practice, which The Wall Street Journal has uncovered in a series of articles, suggests the banks are carrying more risk most of the time than their investors or customers can easily see, and then juggling it during quarter-end reporting of financials.

Window dressing isn't illegal in itself. But intentionally masking debt to deceive investors violates regulatory guidelines. BofA said its incorrect accounting wasn't intentional.

Apart from requiring more disclosure about the bank's repo accounting, the SEC hasn't taken any action against BofA over the matter. The fact that the letter was released suggests the SEC has concluded its review.

BofA repays TARP funds

"Bank of America Corp. sent the Treasury Department $45 billion to repay the government's cash infusion last year under the Troubled Asset Relief Program.

The repayment came after the banking giant completed a securities offering that raised gross proceeds of about $19.29 billion. That money and other corporate funds were used to repurchase all the preferred stock issued to the Treasury. Bank of America also paid the government $190 million in accrued dividends.

The Treasury continues to hold warrants to buy Bank of America common stock issued as part of the TARP investment.

"We owe taxpayers our thanks for making these funds available to the nation's financial system and to our company during a very difficult time," said Chief Executive Kenneth Lewis.

Bank of America's repayment leaves Citigroup Inc. and Wells Fargo & Co. as the last two major banks that haven't repaid TARP funds. They are wrestling with the government over how much capital they will be required to raise to exit from the program.

As part of Bank of America's deal to repay the TARP funds, the Federal Reserve is requiring the company to increase equity by about $3 billion through asset sales. Bank of America previously agreed to raise up to about $1.7 billion by issuing restricted stock in lieu of a portion of incentive cash compensation to some employees as part of their usual year-end incentive payments."

Today, the U.S. Department of the Treasury received full repayment on its Troubled Asset Relief Program (TARP) investments in Bank of America in the sum of $45 billion, bringing the total amount of repaid TARP funds to $118 billion. Treasury now estimates that total bank repayments could reach up to $175 billion by the end of 2010, cutting total taxpayer exposure to the banks by almost three-quarters from the peak. Treasury currently estimates that every one of its programs aimed at stabilizing the banking system – the Capital Purchase Program, the Targeted Investment Program, the Asset Guarantee Program, and the Consumer and Business Lending Initiative -- will earn a profit thanks to dividends, interest, early repayments, and the sale of warrants. Total bank investments of $245 billion in FY2009 that were initially projected to cost $76 billion are now projected to bring a profit of $19 billion. Taxpayers have already received about $15 billion in revenue through interest, dividends, and the sale of warrants, and that profit could be considerably higher as Treasury sells additional warrants in the weeks ahead.

WASHINGTON -- The U.S. Department of the Treasury today announced that it has commenced a secondary public offering of 150,375,940 warrants to purchase the common stock of Bank of America Corporation (the "Company") (the "A Warrants") and a secondary public offering of 121,792,790 warrants to purchase the common stock of the Company (the "B Warrants"). The proceeds of these sales will provide an additional return to the American taxpayer from Treasury's investment in the Company beyond the dividend payments it received on the related preferred stock. The offerings are expected to price through a modified Dutch auction. Deutsche Bank Securities Inc. is the sole book-running manager and Blaylock Robert Van LLC, CastleOak Securities, L.P., Guzman & Company, Loop Capital Markets LLC, M.R. Beal & Company and Toussaint Capital Partners, LLC are the co-managers for the offerings.

Deutsche Bank Securities Inc., in its capacity as auction agent, has specified that the auctions will commence at 8 a.m., Eastern Time, on March 3, 2010, and will close at 6:30 p.m., Eastern Time, on that same day (the "submission deadline"). During the auction period, potential bidders for the A Warrants will be able to place bids at any price (in increments of $0.05) at or above the minimum bid price of $7.00 per warrant, and potential bidders for the B Warrants will be able to place bids at any price (in increments of $0.05) at or above the minimum bid price of $1.50 per warrant.

The auction procedures, and the applicable exercise prices, expirations, and other terms of the warrants are described in the preliminary prospectus supplements referenced below.

The warrants are being offered pursuant to an effective shelf registration statement that has been filed by the Company with the Securities and Exchange Commission (the "SEC"). Preliminary prospectus supplements related to the offerings will be filed by the Company with the SEC and will be available on the SEC's website at Copies of the final prospectus supplements relating to these securities may be obtained, when available, from Deutsche Bank Securities, Prospectus Department, Harborside Financial Center, 100 Plaza One, Jersey City, New Jersey 07311-3988, telephone: 1-800-503-4611.

BofA recapitalizes

CHARLOTTE, N.C., Nov. 2 -- Bank of America today announced that it will repay U.S. taxpayers their entire $45 billion investment provided under the Troubled Asset Relief Program (TARP). The repayment will be made after the completion of a securities offering (see below).

To date, Bank of America has paid $2.54 billion in dividends to the U.S. Treasury on the TARP investment. Repaying TARP will save the company approximately $3.6 billion in annual dividend costs from the TARP investment.

"We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," said Kenneth D. Lewis, chief executive officer and president. "As America's largest bank, we have a responsibility to make good on the taxpayers' investment, and our record shows that we have been able to fulfill that commitment while continuing to lend. We believe that this is good news, not only for the U.S. taxpayer and our company, but for the country as it is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover.

"Adding TARP to our capital has allowed Bank of America to continue to support the economy. In the 12 months since the government first made its investment in Bank of America, our company originated $760 billion in new credit, or approximately $3 billion per business day," Lewis added. "Importantly, this includes our leadership role in financing home ownership, helping more than 1.54 million customers purchase a new home or refinance their existing mortgages and another 423,000 homeowners modify their loans to avoid foreclosure."

So far this year, Bank of America has extended more than $12 billion in credit to small-business customers and assisted more than 49,000 small business card clients in improving their cash flows by modifying their payment structures.

The repayment of TARP is the latest in a series of actions taken to reduce Bank of America's reliance on government assistance. Other actions include:

Paying the U.S. government $425 million to terminate a term sheet that would have guaranteed up to $118 billion in assets, if a final agreement had been reached. Opting out of the Temporary Liquidity Guarantee Program (TLGP) in September. Exiting the Term Auction Facility (TAF) in the summer of 2009. Eliminating borrowings from the Federal Reserve's Term Securities Lending Facility (TSLF) and Primary Dealer Credit Facility (PDCF). Announcing plans to exit the Transaction Account Guarantee Program (TAGP) effective Jan. 1, 2010. Increasing Tier 1 Common capital by approximately $40 billion in the second quarter of 2009. Issuing more than $10 billion in non-government-backed debt in the public markets in 2009. Under terms of the authorization from the U.S. Treasury and banking regulators to repay the $45 billion investment made under TARP, Bank of America will repurchase all 600,000 shares of the company's Fixed Rate Cumulative Perpetual Preferred Stock, Series N; all 400,000 shares of the company's Fixed Rate Cumulative Perpetual Preferred Stock, Series Q; and all 800,000 shares of the company's Fixed Rate Cumulative Perpetual Preferred Stock, Series R. The shares were issued to the U.S. Treasury as part of TARP. Bank of America is not exercising its right to repurchase the related warrants at this time.

Bank of America plans to repay the $45 billion in TARP funds using $26.2 billion in excess liquidity and $18.8 billion in proceeds from the sale of "common equivalent securities." Shareholders would be asked at a special meeting to be held within 105 days of issuance to approve an increase in the authorized shares outstanding in order to allow the "common equivalent securities" to be converted into common stock. The "common equivalent securities" carry warrants to buy a total of 60 million shares of common stock at $0.01 per share and other benefits if shareholders do not approve an increase in authorized common shares.

In addition, Bank of America agreed to increase equity by $4 billion through asset sales to be approved by the Board of Governors of the Federal Reserve and contracted for by June 30, 2010. To the extent those asset sales are not completed by the end of 2010, the company agreed it would raise a commensurate amount of common equity.

Bank of America also agreed to raise up to approximately $1.7 billion through the issuance of restricted stock in lieu of a portion of incentive cash compensation to certain Bank of America associates as part of their normal year-end incentive payments. Year-end incentive payments are dependent on the performance of the company, business units and individuals and have not yet been determined. This initiative also aligns associate interests with the company's performance.

After the TARP repayment and these initiatives, the company's Tier 1 Capital ratio would be 11.0 percent, pro forma based on the September 30, 2009 ratio of 12.5 percent. The Tier 1 Common capital ratio would be 8.5 percent, pro forma based on the September 30, 2009 ratio of 7.3 percent. The company will continue to have strong liquidity.

Repurchase of TARP preferred stock is expected to reduce income available to common shareholders in the fourth quarter by $4.1 billion, as the book value of the preferred is less than the amount paid.

Federal Reserve on Bank of America

On January 16, 2009, the Treasury, the Federal Reserve, and the FDIC jointly announced that the U.S. government would provide support to Bank of America to support financial market stability. The terms of the support were disclosed on this website.

Because the Federal Reserve has not extended credit to Bank of America under this arrangement, the commitment is not reflected in the H.4.1 statistical release.

Fed as Bof A regulator

"... What Mr. Lewis didn't know was that even as certain U.S. officials were pressing him to close the Merrill deal, supervisory Fed employees had growing concerns about Bank of America's own financial strength and were considering taking action. Moreover, the Merrill acquisition made those concerns greater, because it saddled the bank with soured securities.

On Dec. 20, Mac Alfriend, a senior supervisory official at the Federal Reserve Bank of Richmond, which oversees the bank, emailed a Fed official in Washington about "thoughts on getting a pound of flesh out of Lewis." The Washington Fed official, Deborah Bailey, responded that the Fed was considering steps, including a memorandum of understanding, or MOU, to force Bank of America to improve its operations and management. "It would be done with a series of actions including cutting drastically the dividend, some supervisory action (MOU) that covers management," wrote Ms. Bailey.

Federal Reserve and Richmond Fed officials declined to comment. Ms. Bailey, who has since left the Fed, declined to comment through her new employer, Deloitte & Touche LLP.

The word from Mr. Bernanke was more conciliatory. In a conversation with Mr. Lewis on New Year's Eve, the Fed chairman said, "We will not leave you in the lurch," according to notes Mr. Lewis took. His notes say Mr. Bernanke told him Bank of America was "a strong company that has acted very appropriately throughout very difficult circumstances."

Pressure on Mr. Lewis kept mounting. In January, say people familiar with the events, some of the bank's directors went behind the CEO's back and informally inquired whether former Bank of America Vice Chairman James Hance, whom Mr. Lewis had beaten out for the top spot in 2001, would be available to step in to replace Mr. Lewis if needed.

By February, the Fed crackdown was overlapping with an investigation by New York Attorney General Andrew Cuomo about, among other things, whether Bank of America shareholders and others had been misled about the losses at Merrill.

Mr. Lewis was growing increasingly frustrated and found he disliked dealing with politicians. During one awkward moment, at a March meeting at the White House with President Barack Obama and other bank chief executives, Mr. Lewis said publicly that he didn't plan to "suck up" to officials..."

BofA pays $425 million to end government guarantee

Source: BofA Pays $425 Million to End Government Guarantee Securities Law Prof Blog, September 21, 2009

Bank of America Corporation announced that it has reached an agreement with the U.S. Government to terminate its term sheet with respect to the guarantee of up to $118 billion in assets by the U.S. Government. The term sheet was executed in connection with Bank of America's acquisition of Merrill Lynch in January 2009. Under terms of the agreement, Bank of America will pay $425 million to the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation. Bank of America also announced that it had received FDIC approval to exit the debt guarantee program under the FDIC's Temporary Liquidity Guarantee Program (TLGP).

According to the announcement, "The decisions to terminate the asset guarantee term sheet and exit the debt guarantee program are the latest in a series of steps taken by Bank of America to reduce its reliance on government support and return to normal market funding."

"Bank of America Corp. is trying to avoid paying billions of dollars in fees to U.S. taxpayers for guarantees against losses at Merrill Lynch & Co., saying the rescue agreement was never signed and the funding never used.

Regulators contend Bank of America owes at least part of a $4 billion fee it agreed to pay in January -- even without a completed legal document -- because the company benefited from implied U.S. backing on about $118 billion of Merrill Lynch assets, such as mortgage-backed bonds, people familiar with the matter said. The Charlotte, North Carolina-based bank says it owes the Treasury nothing, according to the people, who declined to be identified because the negotiations are confidential."

Congressional oversight

BofA withdraws opposition to CFPA

Bank of America Corp., the nation’s largest bank, vowed that it won’t oppose President Barack Obama’s plan to create the Consumer Financial Protection Agency.

Chief Executive Officer Brian Moynihan informed White House and U.S. Treasury Department officials of the company’s stance last month, bank spokesman James Mahoney said today in an interview. While not endorsing the agency, the Charlotte, North Carolina-based bank agrees with the “policy direction,” Mahoney said.

“We’ve made it clear to various organizations of which we are part that we aren’t lobbying against the agency,” Mahoney said. The bank also isn’t promoting the concept, leaving the decision to Congress and U.S. agencies, he said.

The stance may put Moynihan at odds with rival bankers, whose lobbyists have spent millions of dollars to head off the new agency. Moynihan, 50, has sought to improve relations with regulators since taking over on Jan. 1 from Kenneth D. Lewis as CEO. Lewis clashed with U.S. officials about the bank’s $45 billion bailout and its purchase of Merrill Lynch & Co.

Officials at the Treasury who met with Moynihan were pleasantly surprised by the bank’s position, according to a department spokesperson. The Treasury is watching to see if groups that represent the company in Washington also refrain from opposing the new agency, the spokesperson said.

Moynihan wants regulators focused on making products and activities transparent, simple and fair without singling out one type of financial institution, Mahoney said. The bank opposes proposals that would allow state regulators to overrule federal guidelines, a process that would be inefficient for national banks, he said.

Bank of America e-mails show Lehman was buy target not Merrill

When Bank of America Corp.’s board met to approve the acquisition of an investment bank on Sept. 15, 2008, members thought they were going to buy Lehman Brothers Holdings Inc., not Merrill Lynch & Co., according to New York Attorney General Andrew Cuomo.

The bank bought Merrill after examining its books for just 25 hours, Cuomo claimed. Shareholders approved the deal Dec. 5, 2008. The acquisition closed Jan. 1, 2008, after Merrill losses had increased by billions of dollars, a change the bank didn’t disclose before the shareholder vote, Cuomo said.

“It’s the way we approved acquisitions that ticks me off the most!!!” director Chad Gifford later wrote in an e-mail about the last-minute switch, according to a securities-fraud complaint Cuomo filed today in New York against the bank, former Chief Executive Officer Kenneth Lewis and ex-Chief Financial Officer Joe Price over their handling of the Merrill deal.

E-mails and written notes that were gathered by Cuomo for his investigation of the matter show personal reactions of executives as they learned of Merrill’s rising losses, which reached $16 billion before taxes by December 2008. They also show Merrill kept Price informed of the losses as they grew, yet he resisted pressure from his lawyers to disclose them to shareholders.

“Read and weep,” wrote Bank of America accounting officer Neil Cotty to Price on Nov. 4, 2008, when Merrill’s financial reporting unit forwarded preliminary October results with a loss of $6 billion. The merger documents had already gone out to shareholders. Five days later, the October loss was put at $7.5 billion before taxes.

Disclosure Recommended

When Price asked for a review of whether the losses -- then $5 billion after taxes -- should be disclosed to shareholders, his general counsel Timothy Mayopoulos said they should. An e- mail from Eric Roth, a partner at the bank’s outside law firm, Wachtell, Lipton, Rosen & Katz, sought research within his firm on “the duty to disclose,” according to the lawsuit.

Roth’s notes from a call with Wachtell Lipton partner Warren Stern say, “duty to bring to shareholders all info material to vote.” The firm told the bank it should disclose the losses, Cuomo claims.

The law firm was “marginalized” by the bank after that, choosing not to disclose, Cuomo claimed. Mayopoulos was later fired by Price and replaced by Brian Moynihan, who later became CEO, Cuomo said.

Cotty warned Price in December e-mails that Merrill’s evaluation of its securities might be too optimistic, so there may be “downside” in its estimated results.

Lewis Worried

Lewis by then was worried about his job, according to an e- mail from Federal Reserve Bank of Richmond Senior Vice President Mac Alfriend that is cited by Cuomo.

Lewis “is worried about stockholder lawsuits; knows they did not do a good job of due diligence and the issues facing the company are finally hitting home and he is worried about his own job after cutting loose lots of very good people,” Alfriend wrote on Dec. 23.

Lewis did not want to tell shareholders of the pending government bailout and asked “whether he could use as a defense” that the government didn’t want him to disclose, according to an e-mail from Fed Chairman Ben Bernanke. “I said no,” Bernanke wrote.

The case is People of State of New York v. Bank of America, State Supreme Court (Manhattan).

Fifth oversight hearing scheduled

"House lawmakers plan to put pressure on the Securities and Exchange Commission Friday to expand its investigation of Bank of America Corp. (BAC), using documents they believe show the bank failed to notify shareholders of potentially significant losses ahead of a vote on its merger with Merrill Lynch and Co. Inc.

The questions add another wrinkle into the story surrounding Bank of America's purchase of Merrill Lynch and how much bank executives knew of Merrill Lynch's financial problems ahead of the shareholder vote.

Robert Khuzami, the SEC's chief enforcement officer, will appear before the committee, along with Federal Deposit Insurance Corporation Chairman Sheila Bair.

Current SEC Chairwoman Mary Schapiro and former SEC Chairman Christopher Cox were originally slated to testify at the hearing Friday. But in a series of last-minute committee negotiations, members settled on Khuzami as the SEC's representative instead of Schapiro and agreed that Cox didn't need to appear, according to people familiar with the matter.

The Oversight Committee's Domestic Policy Subcommittee, chaired by Rep. Dennis Kucinich (D., Ohio), plans to present Khuzami with a financial forecast that had been prepared by Merrill Lynch a few weeks ahead of the December 2008 shareholder vote on the merger, according to subcommittee documents obtained by Dow Jones.

The forecast omits projected losses from Merrill Lynch's illiquid assets for the month of December and underestimates by almost half the roughly $15 billion after-tax fourth quarter loss, the documents say.

Based on the subcommittee's investigations, Kucinich says he believes Bank of America executives were aware of the red flags raised by Merrill Lynch's forecast. But that didn't stop them from presenting the document to their lawyers at Wachtell, Lipton, Rosen & Katz.

Bank of America didn't send any additional shareholder notice ahead of the merger vote.

Kucinich says Bank of America's decision not to investigate the Merrill Lynch document and notify shareholders of any change in expectations amounts to "an egregious violation of securities laws."

Representative Kucinich on Bank of America


After reviewing over 400,000 pages of documents and interviewing the key players at Bank of America, Merrill Lynch and the law firm of Wachtell, Lipton, Rosen & Katz, we have found evidence of possible securities law violations at Bank of America:

Bank of America relied on the November 12 forecast for Fourth Quarter ‘08, created by Merrill Lynch, that, omitted any forecast of how collateralized debt obligations, subprime mortgage backed securities, credit default swaps – would perform in the quarter. The former Merrill CFO admitted to staff that the November 12 forecast was not, in fact, a valid forecast. Bank of America knew at the time that the November 12 forecast was of “questionable validity.” However, Bank of America did not do any actual financial analysis to make up for the Merrill omissions. Instead, Bank of America merely pulled a number out of thin air on November 13, which was recorded on the forecast document as the “gut” feeling of Neil Cotty, Bank of America’s Chief Accounting Officer. Bank of America simply created an assumption that Merrill Lynch’ illiquid assets would almost break even for November, thereby spreading October’s bad results over two months. The attorneys at Bank of America and at Wachtell, Lipton did not question the financial information they were given, in spite of the glaring and obvious omission and the explicit reference to a “gut” feeling. They advised Bank of America not to make further disclosures to its shareholders in advance of the merger vote, based on the information in the deficient forecast and a “gut” feeling.

Oversight hearing to examine new documents on BofA deal

House lawmakers this week will use newly released internal documents to dig into Bank of America’s controversial acquisition of Merrill Lynch.

Bank of America last week reached an agreement with federal regulators to release internal documents on the deal that are being provided to staff on the House Committee on Oversight and Government Reform.

The House panel on Thursday is slated to hold its fourth hearing into the deal and whether officials at the Federal Reserve and Treasury Department pressured Bank of America to complete the acquisition. The hearing on Thursday is scheduled to have testimony from the Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), former SEC Chairman Chris Cox and Bank of America officials.

Committee Chairman Edolphus Towns (D-N.Y.), ranking member Rep. Darrell Issa (R-Calif.) and Rep. Dennis Kucinich (D-Ohio) have led the investigation.

Bank of America in December was considering invoking a legal clause that would have ended the deal with Merrill. Treasury and Fed officials have testified that they believed that had the potential to further destabilize the financial system and harm Bank of America. Merrill was facing more than $15 billion in losses.

But investigators have questioned whether federal officials threatened to remove bank management if the deal did not proceed. The deal was completed in January 2009.

Congress presses for details from Bank of America

"For months, Bank of America has been trying to keep secret its legal conversations at the end of last year about its coming merger with Merrill Lynch. So far, it has succeeded, mainly by arguing that those conversations should remain confidential because they are protected by attorney-client privilege.

But now, the bank is facing questions from a House panel, the Committee on Oversight and Government Reform, whose chairman, Representative Edolphus Towns, has told the bank that it cannot use attorney-client privilege when dealing with Congress.

If Mr. Towns has his way, Bank of America would be forced to reveal information that would then affect a range of other investigations into the merger, including one by the attorney general of New York and another by the Securities and Exchange Commission.

In a sternly worded letter on Friday, Mr. Towns, a New York Democrat, said the bank must divulge when it became aware of the enormous losses at Merrill last year, when it received a commitment from the federal government for a second round of bailout money and what legal advice its management received about whether it had to disclose those developments to the bank’s shareholders.

Mr. Towns gave the bank until noon on Monday to provide answers and relevant legal documents. He said it seemed that the bank was “hiding information.” The bank replied to Mr. Towns’s committee late on Saturday, asking him to delay that request until after Tuesday, when Mr. Towns meets with Anne Finucane, the bank’s chief strategy and marketing officer, who oversees public policy at the bank. But a spokesman for Mr. Towns said on Sunday that he was sticking to the deadline.

“We appreciate and take very seriously the committee’s important oversight role and have nothing but the strongest intent to work with the committee to help it understand these events,” Kenneth D. Lewis, the bank’s chief executive, said in a letter to Mr. Towns.

The move sets up a showdown that will be widely watched in both Washington and on Wall Street. Bank of America is trying to defuse the issue with the help of some high-powered lobbyists. It recently hired the Podesta Group, run by Tony Podesta, a prominent Democratic lobbyist, to contact Mr. Towns’s staff...

...While Bank of America acknowledged that Congress had the authority to disregard attorney-client privilege, the bank’s Washington law firm, WilmerHale, argued that that would set a bad precedent and referred Mr. Towns’s staff to the Attorney-Client Privilege Protection Act, which passed in the House but never became law.

This summer, Mr. Towns’s committee held three prominent hearings about the merger, calling Mr. Lewis to testify as well as Ben S. Bernanke, the chairman of the Federal Reserve, and Henry M. Paulson Jr., the former secretary of the Treasury. Since then, the committee has been plowing through 70,000 pages of documents in 31 legal-size boxes supplied by the bank.

Mr. Towns ridiculed some of the documents in his letter to the bank, particularly one about an annual pecan sale and another that praised Mr. Lewis for his performance last year on “60 Minutes.”

In its reply this weekend, the bank explained to Mr. Towns that it had supplied the same documents to the committee as it had provided to Mr. Cuomo, who issued a broad request earlier in the year. The bank’s law firm said the bank was trying to avoid “line drawing that might inadvertently exclude documents that committee staff might have considered relevant.”

While the S.E.C. is focused on whether the bank’s shareholders were wronged by the bank’s actions, Mr. Towns’s committee also has an eye on the $20 billion in additional taxpayer money that was given to the bank just after the merger. His office interviewed Joe Price, the bank’s chief financial officer, last month and may ultimately publicize its findings in a report."

Lawmaker wants BofA documents

"A U.S. House lawmaker is demanding Bank of America Corp. turn over new documents to investigators about its decision to not publicly disclose ballooning losses at Merrill Lynch & Co. ahead of a shareholder vote last December.

Rep. Edolphus Towns (D., N.Y.), who chairs the House Committee on Oversight and Government Reform, on Thursday sent a letter to Bank of America Chief Executive Kenneth Lewis asking for a wide range of documents covering the details surrounding the deal for Merrill Lynch.

The documents requested include emails and documents dealing with losses and loss projections at Merrill Lynch; records covering negotiations with the federal government on bailout funds received by the bank; and the details of any legal advice received by the bank on disclosure of the losses or government aid.

Mr. Towns set a deadline of noon EDT on Aug. 14 for Bank of America to turn over the documents.

The request is the latest twist in an ongoing investigation being conducted by the Oversight panel that has seen Mr. Lewis, Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson all testify under oath before lawmakers in recent months.

Investigators are requesting the documents in response to a Wall Street Journal story on Thursday that suggested company documents challenge Bank of America's claims that the losses at Merrill Lynch didn't begin to swell until after the Dec. 5 shareholder vote. A Dec. 3 email cited in the Journal story revealed that the loss projections for Merrill Lynch swelled by nearly $2 billion in the days leading up to the vote, but that company executives decided they were not material enough to disclose publicly to shareholders."

SEC lawsuit related to shareholder disclosure

Rakoff approves SEC-BofA pact

A federal judge reluctantly approved a $150 million settlement Monday between Bank of America Corp. and the Securities & Exchange Commission over the bank's disclosures before its acquisition of Merrill Lynch & Co. last year.

In an order Monday, U.S. District Judge Jed S. Rakoff in Manhattan approved the pact but called the revised settlement "far from ideal." The judge rejected a $33 million settlement in September.

The agreement resolves two separate lawsuits by the SEC over the Charlotte, N.C., bank's disclosures before the $50 billion merger closed on Jan. 1, 2009. The first of the SEC's lawsuits was set for trial on March 1.

"So should the court approve the proposed settlement as being fair, reasonable, adequate and in the public interest?," the judge said. "If the court were deciding that question sole on the merits—de novo, as the lawyers say—the court would reject the settlement as inadequate and misguided. But as both parties never hesitate to remind the court, the law requires the court to give substantial deference to the SEC as a regulatory body having primary responsibility for policing the securities markets, especially with respect to matter of transparency."

In his order, the judge instructed the parties to include a provision in the revised settlement that the $150 million be distributed to shareholders harmed by the alleged nondisclosures— namely legacy Bank of America shareholders and not to Merrill Lynch shareholders who now own Bank of America stock or bank officers or directors who had access to the information.

The judge also asked the parties to include several minor revisions to the pact that the parties had previously agreed to, including giving the SEC a say in the hiring of an independent auditor to assess over the next three years whether the bank's accounting controls and procedures are adequate.

Rakoff says "presented with two strikingly different versions of the facts"

"A judge promised Monday to decide by the end of next week whether to approve a $150 million settlement between the Securities and Exchange Commission and Bank of America over civil charges alleging the bank misled shareholders when it acquired Merrill Lynch.

U.S. District Judge Jed Rakoff said he will decide only after giving lawyers on both sides a written list of questions he has and hearing their responses...

...In reviewing the new settlement, Rakoff said he did not think it made sense to leave no oversight of the company in choosing its compensation consultant, especially given the "incredibly bloated compensation of too many executives in too many American companies."

He said he will rule by Feb. 19 whether to accept the deal announced last week. If he rules against it, a trial in the civil case brought by the SEC against Bank of America is scheduled to start March 1.

SEC spokesman John Nester in Washington said, "We will respond to the court's questions as requested."

Rakoff questioned whether the deal requiring a company to pay its shareholders was, in essence, a payment by shareholders to shareholders.

SEC lawyer George S. Canellos said a penalty expense for a large corporation does not necessarily come from shareholders because a company can trim money from other parts of the business such as bonus and salaries.

At one point, Rakoff questioned why the amount to be paid shareholders could not be $300 million or $600 million. Canellos said the amount the parties settled on was considered as a penalty for the company rather than a compensation scheme for shareholders. He also noted there had been a high turnover in shareholders since the acquisition.

At the start of the hearing, Rakoff put the SEC on the defensive as he read from a harshly critical recounting of the facts in a complaint filed last week by the New York Attorney General's office against Bank of America.

He said the charges brought by the attorney general's office contained "in very great detail in 85 pages a great many allegations that seem far more suggestive of intentional fraud than anything presented by the SEC."

Canellos said the SEC was looking at the same facts and evidence as New York state but was focused on being "absolutely fair and impartial judges of the evidence before us."

The judge questioned why the SEC did not come to the same conclusion as New York that the firing of Bank of America's general counsel in December 2008 came about because the lawyer wanted to force the company to disclose damaging information to shareholders.

"We do not credit that as accurate," Canellos said. "It is an inference that does not derive from any evidence."

Rakoff countered: "I've been presented with two strikingly different versions of the facts."

Later, Rakoff said the recommendations in the settlement for changes at Bank of America to prevent a repeat of its problems during its acquisition "strike me as quite positive."

Bank of America lawyer Lewis J. Liman said he would need to consult further with the company before responding to some of the judge's questions but he was firm in stating that the company wanted to retain independent control over its compensation policies.

He said "a further order would not be supported by the evidence or the allegations. There are no allegations about BOA pay practices."

BofA agrees to pay $150M to settle SEC charges


Litigation Release No. 21407 / February 4, 2010

Securities and Exchange Commission v. Bank of America Corporation, Civil Action Nos. 09-6829, 10-0215 (S.D.N.Y)

Bank Of America Agrees to Pay $150 Million to Settle SEC Charges

The Securities and Exchange Commission today filed a motion seeking court approval of a proposed settlement whereby Bank of America will pay $150 million and strengthen its corporate governance and disclosure practices to settle SEC charges that the company failed to properly disclose employee bonuses and financial losses at Merrill Lynch before shareholders approved the merger of the companies in December 2008.

The SEC previously filed two sets of charges in the U.S. District Court for the Southern District of New York alleging Bank of America failed to disclose material information to shareholders prior to their vote to approve the merger with Merrill Lynch. In the first enforcement action on Aug. 3, 2009, the Commission charged Bank of America with failing to disclose, in proxy materials soliciting shareholder votes for approval of the merger, its prior agreement authorizing Merrill to pay year-end bonuses of up to $5.8 billion to its employees prior to the closing of the merger. In the second enforcement action on Jan. 12, 2010, the Commission charged Bank of America with failing to disclose the extraordinary losses that Merrill sustained in October and November 2008.

Under the terms of the proposed settlement, which are subject to approval by the Honorable Jed S. Rakoff, the $150 million penalty will be distributed to Bank of America shareholders harmed by the Bank’s alleged disclosure violations. The Commission will propose a distribution plan at a later date.

The proposed settlement requires Bank of America to implement and maintain seven remedial undertakings for a period of three years:

  • Retain an independent auditor to perform an audit of the Bank’s internal disclosure controls, similar to an audit of financial reporting controls currently required by the federal securities laws.
  • Have its Chief Executive and Chief Financial Officers certify that they have reviewed all annual and merger proxy statements.
  • Retain disclosure counsel who will report to, and advise, the Board’s Audit Committee on the Bank’s disclosures, including current and periodic filings and proxy statements.
  • Adopt a “super-independence” standard for all members of the Board’s Compensation Committee that prohibits them from accepting other compensation from the Bank.
  • Maintain a consultant to the Compensation Committee that would also meet super-independence criteria.
  • Provide shareholders with an annual non-binding “say on pay” with respect to executive compensation.
  • Implement and maintain incentive compensation principles and procedures and prominently publish them on Bank of America’s Web site.

The proposed settlement includes a Statement of Facts describing the details behind the allegations in the actions based on the discovery record.

The SEC is grateful for the support and cooperation of Attorney General Andrew Cuomo and the Office of the New York State Attorney General. The SEC also thanks Attorney General Roy Cooper, Attorney General of the State of North Carolina, and his staff for their collaboration on the terms of the proposed settlement. The SEC acknowledges the assistance of the U.S. Attorney’s offices for the Southern District of New York and Western District of North Carolina, the Federal Bureau of Investigation, and the Office of The Special Inspector General for the Troubled Asset Relief Program in the investigation leading to the actions.

See Also:

SEC seeks to file new complaint in Merrill bonus case

The U.S. Securities and Exchange Commission said Bank of America Corp. failed to disclose “extraordinary losses” by Merrill Lynch & Co. in the weeks before investors voted on the takeover of Merrill Lynch in 2008.

The SEC, in a letter dated Dec. 31 and released publicly today, asked a Manhattan federal judge’s permission to file a new complaint in its lawsuit that already claims Bank of America misled shareholders over bonuses paid by Merrill Lynch. Based on information discovered since it sued in August, the SEC claims that by the time of the Dec. 5, 2008, vote, Bank of America was aware of $4.5 billion in losses at Merrill in October and billions more in November.

The lender violated securities law by failing to disclose the losses by updating a proxy statement to shareholders before the vote, according to the SEC.

“These losses alone constituted more than one-third of the merger value as of December 5, and approximately 60 percent of Merrill’s entire losses in the preceding three quarters of the year,” SEC lawyers said in the letter. “Nevertheless, despite its representation that it would update shareholders, BOA kept them in the dark as they were asked to vote on the proposed merger.”

‘Inexcusably Waited’

Bank of America, in a Jan. 7 letter that was released today, asked the court to reject the revised complaint filed with the regulator’s letter. The SEC “inexcusably waited” to bring the claims until only a few months before the trial, and the allegations have no legal basis, the company’s lawyers wrote in the letter to the judge.

The Charlotte, North Carolina-based bank said in the letter that it “would be severely prejudiced if the amendment were allowed at this late date.”

The trial is scheduled to begin March 1.

The case is Securities and Exchange Commission v. Bank of America Corp., 09-cv-06829, U.S. District Court, Southern District of New York (Manhattan).


BofA broadens representation for SEC trial

"Bank of America hired Paul, Weiss, Rifkind, Wharton & Garrison to join its legal defense as it prepares for litigation with the Securities and Exchange Commission in federal district court in New York, bank spokesman Lawrence Di Rita said.

The bank previously hired Cleary, Gottlieb, Steen & Hamilton to work on regulatory issues.

“We are augmenting our legal team with Paul Weiss,” Di Rita said today in an interview. “Cleary remains our lead counsel, but we are adding expertise and we continue to prepare and present our facts to the court.”

U.S. District Judge Jed Rakoff in Manhattan rejected a proposed $33 million settlement between the bank and the SEC over allegations that the bank withheld information from shareholders about $3.6 billion in bonuses paid to Merrill employees. A trial is scheduled for next year.

In the Delaware case, Di Rita said, “We continue to believe we acted appropriately and we are preparing to present out case to the court if that becomes necessary.”

Judge rejects settlement over Merrill bonuses

A Federal District judge on Monday overturned a settlement between the Bank of America and the Securities and Exchange Commission over bonuses paid to Merrill Lynch executives just before the bank took over Merrill last year.

The $33 million settlement “does not comport with the most elementary notions of justice and morality,” wrote Jed S. Rakoff, the judge assigned to the case in federal court in Lower Manhattan.

The ruling directed both the agency and the bank to prepare for a possible trial that would begin no later than Feb. 1. The case involved $3.6 billion in bonuses that were paid by Merrill Lynch late last year, just as that firm was about to be merged with Bank of America. Neither company provided details of the bonuses to their shareholders, who voted on Dec. 5 to approve the merger.

The judge focused much of his criticism on the fact that the fine in the case would be paid by the bank’s shareholders, who were the ones that were supposed to have been injured by the lack of disclosure.

“It is quite something else for the very management that is accused of having lied to its shareholders to determine how much of those victims’ money should be used to make the case against the management go away,” the judge wrote.

BofA could face jury trial over Merrill Lynch bonuses

Bank of America may face a jury trial over claims it misled investors about billions of dollars of bonuses paid to Merrill Lynch executives.

The Securities and Exchange Commission (SEC) made a plea to the US District Court for the case to be heard by a jury after Judge Jed Rakoff rejected a $33 million settlement deal between Bank of America and the SEC last month.

Merrill Lynch paid out $3.6 billion in bonuses in 2008 despite making a $27.6 billion loss during that year.

It is alleged by the SEC that Bank of America had told Merrill Lynch executives that they could pay almost $6 billion in bonuses, despite telling investors in November 2008 that Merrill had agreed not to pay out end of year bonuses.

Bank of America spokesman Lawrence Di Rita said: "We remain confident that we disclosed everything that we were required to and are preparing for the opportunity to present the facts before the court and the jury."

Last week, Bank of America chief executive officer Kenneth Lewis, who presided over the Merrill Lynch deal, took early retirement.

Outside attorneys managed BofA bonus disclosure

Source: Bank Case on Bonuses Shifts Focus to Lawyers New York Times, August 24, 2009

"The finger-pointing in Merrill Lynch’s bonus troubles shifted to a new target on Monday in two courts that essentially said: blame the lawyers.

Responding to questions posed by a federal judge, Bank of America and the Securities and Exchange Commission said the bank had relied on its outside lawyers to fill in the fine print in that firm’s controversial marriage with Bank of America.

That meant that lawyers at two firms — Wachtell, Lipton, Rosen & Katz as well as Shearman & Sterling — handled a decision to keep Merrill’s $3.6 billion in bonus payouts a secret from Bank of America’s shareholders, according to the filings.

It is unclear if the responses will satisfy the judge who requested them, Judge Jed S. Rakoff of the Southern District of New York. He has the power to decide whether to approve a $33 million settlement reached between Bank of America and the S.E.C. over the bank’s failure to disclose the bonuses to its shareholders.

The judge could hold a second hearing on the settlement, which he lambasted two weeks ago, or he could approve or reject it.

Both the S.E.C. and Bank of America urged the judge to approve the settlement, and insisted that the disclosure of the bonuses — rather than the bonuses themselves — was what was in dispute. Both sought to rein in any sort of broad reach by Judge Rakoff, who had earlier expressed concern that the bank had lied to its shareholders, and had questioned why Merrill had paid bonuses when it had large losses...

..But the bank did not name which of its own executives approved the lawyers’ decisions, which some legal experts said could alienate Judge Rakoff.

“They’re in a no-win situation if what they’re trying to do is stiff-arm Rakoff,” said David Skeel, a law professor at the University of Pennsylvania who has studied how Judge Rakoff overruled the S.E.C.’s settlement with WorldCom, the phone company that committed a vast accounting fraud.

“At this point, they need to be in damage control,” Professor Skeel said.

The S.E.C., whose filing was more detailed, said the bank’s decision to mention the bonuses in an attachment to its proxy statement had been made by the bank’s outside lawyers and at least two lawyers in Bank of America’s legal department.

The S.E.C. said it had asked Kenneth D. Lewis, the chief of Bank of America, and John Thain, Merrill’s chief executive at the time, and Merrill’s former president, Gregory Fleming, why the bonus information was kept in a separate disclosure. “None of them could provide an answer,” the agency said."

TARP oversight of BofA

TARP on BofA emergency capital injections

TARP overseer: No undue pressure on BofA, Merrill Lynch

"The nation's top financial officials did not exercise undue pressure on Bank of America to complete a controversial deal with Merrill Lynch at the height of the financial crisis last December, a top government watchdog has concluded.

Neil Barofsky, the Special Inspector General over the Troubled Asset Relief Program (TARP), said in a report on Monday that Federal Reserve and Treasury officials acted to bolster the country's financial markets. Barofsky oversees the $700 billion bailout package passed by Congress last October.

The deal has been the focus of numerous investigations, including by the Attorney General of New York and the House Committee on Oversight and Government Reform. Rep. Edolphus Towns (D-N.Y.), chairman of the oversight committee, and Rep. Darrell Issa (R-Calif.), the ranking member, have held numerous hearings about whether Fed and Treasury officials pressured or threatened Bank of America to complete the deal.

Barofsky concluded that federal officials "acted based on their concerns for the financial markets as a whole." Bank of America had contacted the government in mid-December after it became aware of mounting losses at Merrill Lynch. Bank of America was considering whether to terminate the deal, citing a material adverse change in Merrill's financial state...

...The report also concludes that there were no government efforts to instruct Bank of America to shield information from shareholders about the extent of Merrill's losses. Towns and Issa have raised concerns about this issue.

Barofsky's office "found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses, but that they agreed to provide financial assistance to ensure that Bank of America remained a viable financial institution after the acquisition out of concern for the financial markets as a whole."

The report also sheds light on how the first nine banks received money from the TARP program and why government officials shifted the intent of the program in favor of capital injections.

Paulson said on Oct. 14, 2008, that the government injected capital into nine banks because they were healthy and that such a move would bolster lending across the financial system. Similar statements were issued by other federal regulators.

But Barofsky concluded that federal officials had varying views about the health of the nine banks. "Their overall selection was far more a result of the officials’ belief in their importance to a system that was viewed as being vulnerable to collapse than concerns about their individual health and viability," according to the report. Citigroup and Bank of America required additional government aid after the first round of support.

Bid-rigging in muni markets

"Several large financial institutions are in settlement talks with the Securities and Exchange Commission to resolve investigations into the awarding of municipal investment contracts, people familiar with the matter said.

UBS AG and Bank of America Corp. are among a few firms negotiating settlements with SEC staff, these people said.

A UBS spokesman declined to comment. A BofA spokeswoman said, "We don't comment on communications with regulators but continue to cooperate." The SEC didn't respond to a request for comment. Any settlement would need to be approved by the SEC commissioners.

The negotiations come as the three-year-old investigation culminated with federal indictments Thursday against three executives of CDR Holdings, a Beverly Hills, Calif., broker, as well as CDR itself. The company worked with municipalities to find managers to invest proceeds raised in debt offerings.

The indictment, filed in U.S. District Court in Manhattan, alleges the CDR executives rigged the auctions to select certain investment advisers and at times received kickbacks from those advisers. The cities, states and municipalities were paid inferior interest rates compared with what they would have earned if the bidding were fair, the government alleges.

Lawyers for the individuals and the company denied the allegations. The Justice Department's inquiry is continuing.

The SEC has been working side by side with the Justice Department in the investigation, which began in November 2006 with a raid on the offices of CDR and two other auction brokers.

Last year, a number of firms and individuals received Wells notices, in which the SEC informs targets of a probe that the staff intends to recommend filing charges. UBS and Bank of America previously disclosed they each received Wells notices.

In 2007, BofA reached a "leniency agreement" under which the government said it wouldn't file criminal antitrust charges against the bank in exchange for its cooperation with the probe. BofA also agreed to pay $14.7 million to the Internal Revenue Service over "the company's role in providing guaranteed investment contracts and other agreements."

GE Funding Capital Market Services Inc., a subsidiary of General Electric Co.'s GE Capital, also disclosed in SEC filings that it received a Wells notice in "connection with the bidding for various financial instruments associated with municipal securities by certain former employees of GE FCMS." In GE's 2008 annual report, the company said its unit disagreed with the SEC staff recommendation and was in discussions of a "potential resolution."

It isn't clear if GE is among the firms negotiating a settlement. GE declined to comment.

The indictment filed Thursday describes transactions between municipalities and CDR and unnamed participants. In at least two bid auctions coordinated by CDR, the government refers to Provider B, "which was a group of separate financial services entities that were controlled by or were part of a company headquartered in Connecticut," according to the complaint. Two people familiar with the matter said Provider B is a GE entity.

In one instance, involving bonds issued in 2005 by a state housing agency, the CDR executives allegedly provided information about competing bids to an official from Provider B, which emerged as the winning bidder, according to the indictment. Provider B gave the state agency an artificially low return because it reduced its rates based on knowing what other bidders were offering, according to the indictment.Several large financial institutions are in settlement talks with the Securities and Exchange Commission to resolve investigations into the awarding of municipal investment contracts, people familiar with the matter said.

UBS AG and Bank of America Corp. are among a few firms negotiating settlements with SEC staff, these people said.

A UBS spokesman declined to comment. A BofA spokeswoman said, "We don't comment on communications with regulators but continue to cooperate." The SEC didn't respond to a request for comment. Any settlement would need to be approved by the SEC commissioners.

The negotiations come as the three-year-old investigation culminated with federal indictments Thursday against three executives of CDR Holdings, a Beverly Hills, Calif., broker, as well as CDR itself. The company worked with municipalities to find managers to invest proceeds raised in debt offerings.

The indictment, filed in U.S. District Court in Manhattan, alleges the CDR executives rigged the auctions to select certain investment advisers and at times received kickbacks from those advisers. The cities, states and municipalities were paid inferior interest rates compared with what they would have earned if the bidding were fair, the government alleges.

Lawyers for the individuals and the company denied the allegations. The Justice Department's inquiry is continuing.

The SEC has been working side by side with the Justice Department in the investigation, which began in November 2006 with a raid on the offices of CDR and two other auction brokers.

Last year, a number of firms and individuals received Wells notices, in which the SEC informs targets of a probe that the staff intends to recommend filing charges. UBS and Bank of America previously disclosed they each received Wells notices.

In 2007, BofA reached a "leniency agreement" under which the government said it wouldn't file criminal antitrust charges against the bank in exchange for its cooperation with the probe. BofA also agreed to pay $14.7 million to the Internal Revenue Service over "the company's role in providing guaranteed investment contracts and other agreements."

GE Funding Capital Market Services Inc., a subsidiary of General Electric Co.'s GE Capital, also disclosed in SEC filings that it received a Wells notice in "connection with the bidding for various financial instruments associated with municipal securities by certain former employees of GE FCMS." In GE's 2008 annual report, the company said its unit disagreed with the SEC staff recommendation and was in discussions of a "potential resolution."

It isn't clear if GE is among the firms negotiating a settlement. GE declined to comment.

The indictment filed Thursday describes transactions between municipalities and CDR and unnamed participants. In at least two bid auctions coordinated by CDR, the government refers to Provider B, "which was a group of separate financial services entities that were controlled by or were part of a company headquartered in Connecticut," according to the complaint. Two people familiar with the matter said Provider B is a GE entity.

In one instance, involving bonds issued in 2005 by a state housing agency, the CDR executives allegedly provided information about competing bids to an official from Provider B, which emerged as the winning bidder, according to the indictment. Provider B gave the state agency an artificially low return because it reduced its rates based on knowing what other bidders were offering, according to the indictment.

FBI, Justice Department are investigating BofA

"The FBI in Charlotte and the U.S. Justice Department are among the multitude of agencies investigating Bank of America Corp.'s acquisition of Merrill Lynch & Co., a knowledgeable source told the Observer on Thursday.

The criminal investigation has been underway for about six months, the source said. The probe means an additional layer of scrutiny for the Charlotte-based bank, which bought Merrill on Jan. 1.

Bank of America already faces investigations from the New York Attorney General's office, the Securities and Exchange Commission and the N.C. Attorney General's office. Those probes have largely focused on the payment of billions in Merrill bonuses before the deal closed and the lack of disclosure of Merrill's ballooning fourth-quarter losses.

The previously disclosed investigations of the bank have appeared to largely involve civil matters that could lead to financial or regulatory penalties against the bank, or fines against some of its leaders."

Oversight by state's Attorney Generals

Ken Lewis, Bank of America sued by Cuomo for fraud

Former Bank of America Corp. Chief Executive Officer Kenneth Lewis was sued by New York Attorney General Andrew Cuomo for defrauding investors and the government when buying Merrill Lynch & Co. The bank agreed to pay $150 million to settle a related lawsuit by U.S. regulators.

Cuomo also sued the bank’s former chief financial officer Joe Price and the bank itself for not disclosing about $16 billion in losses Merrill had incurred before it was bought by Bank of America in an effort to get the merger approved. Afterwards, Lewis demanded government bailout funds, Cuomo said.

“We believe the bank management understated the Merrill Lynch losses to shareholders, then they overstated their ability to terminate their agreement to secure $20 billion of TARP money, and that is just a fraud,” Cuomo said today at a press conference. “Bank of America and its officials defrauded the government and the taxpayers at a very difficult time.”

Cuomo is pursuing individuals at the bank while the U.S. Securities and Exchange Commission has declined to do so. The suit is being filed under the Martin Act, a New York securities law that permits both civil and criminal penalties.

The $150 million SEC settlement still has to be approved by U.S. District Court Judge Jed Rakoff. Last year, Rakoff called the SEC’s initial settlement, which focused on the bank’s bonus disclosures, neither fair nor reasonable and questioned why the bank’s executives and lawyers weren’t sued. The agency said it lacked evidence to bring claims against specific individuals.

SEC Coordination

Cuomo said he coordinated efforts with the SEC. “Our case will bring individuals to justice and will make a point to people that this is a very serious matter,” he said. “When you settle a case the way the SEC is settling today, the upside is you implement immediate regulatory reforms.”

Bank of America, based in Charlotte, North Carolina, is required to take seven steps in the next three years to bolster corporate governance and internal controls.

Last month, the SEC expanded its claims against the bank, accusing it of failing to disclose Merrill Lynch’s mounting losses before holding a shareholder vote on the acquisition.

The proposed fine would be distributed back to harmed shareholders, the SEC said today.

The SEC settlement “addresses the judge’s concerns of penalizing shareholders so it’s likely to pass muster,” said Peter Henning, a law professor at Wayne State University in Detroit. “At the same time, it’s hard to show any monetary damage to shareholders at this point because the Merrill deal has turned out to be a good acquisition for the bank.”

Lewis Retirement

Neil Barofsky, special inspector general for the Troubled Asset Relief Program, also joined in the investigation.

Bank of America was criticized by lawmakers and investors last year for allegedly leaving the public in the dark about Merrill Lynch’s mounting losses and potential bonus payments while seeking to complete the takeover. The uproar helped spur Lewis’s retirement last year.

The conduct of Brian Moynihan, the bank’s current chief executive, is not under investigation, said David Markowitz, Cuomo’s special deputy attorney general for investor protection. Moynihan became general counsel in the middle of events, he said.

According to the complaint, Lewis and his lieutenants Moynihan and Price calculated that if they threatened “to get out of the deal, the federal government would counter with more taxpayer funds out of a concern for the greater economy.”

The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved after the acquisition in January 2009 to keep the deal from collapsing. The bank redeemed the shares in December.

Mayopoulos Fired

Cuomo’s suit also alleges the bank’s former general counsel, Timothy Mayopoulos, was fired after he confronted Price after the shareholder vote when he learned of Merrill’s losses. Cuomo says Mayopoulos was intentionally misled beforehand.

After Mayopoulos tried to confront Price to discuss the increased losses, the bank fired him and replaced him with Moynihan, then head of Bank of America’s Global Corporate Investment Bank, the complaint says. Moynihan had not practiced law in 15 years and had an inactive bar membership, the complaint says.

Moynihan acted as general counsel for Bank of America for about six weeks, the complaint says.

Robert Stickler, a spokesman for Bank of America, said Cuomo’s office has “no intention” of charging Moynihan “because they believe he was not complicit in their scenario, which is based on snippets of facts taken out of context and at times embellished in order to concoct a reasonable scenario.”

The case is People of State of New York v. Bank of America, State Supreme Court (Manhattan).

BofA in talks to settle state claims over Merrill

A year after its controversial takeover of Merrill Lynch, Bank of America is discussing settling a troublesome state inquiry into the star-crossed deal and the billions of dollars in bonuses that Merrill hurriedly paid its employees.

As the banking industry braces for a furor over a new round of big bonuses, Bank of America is negotiating with the staff of the New York attorney general, Andrew M. Cuomo, to settle claims that the bank failed to adequately disclose the risks of the takeover to its shareholders, according to people with knowledge of the matter. Mr. Cuomo has also focused on the bonuses that Merrill paid despite its perilous financial condition.

While no settlement has been reached and the talks are continuing, Bank of America’s new chief executive, Brian T. Moynihan, is interested in bringing an end to myriad legal troubles plaguing the bank. The two sides met last Friday to discuss a possible deal.

With talks with Mr. Cuomo’s office gathering force, Bank of America claimed a crucial legal victory in a separate federal case on Monday. A federal judge, Jed S. Rakoff, rejected a request by the Securities and Exchange Commission to broaden its claims against the bank, which center on the Merrill bonuses. The S.E.C. also said it did not plan to bring claims against individual executives at the bank.

The Bank of America-Merrill merger — a pivotal moment in the financial crisis — has caused headaches both for Bank of America and the S.E.C. Judge Rakoff previously rejected an initial $33 million settlement between the commission and the bank, calling the agreement too low and raising questions about the S.E.C.’s investigation. After Monday’s ruling, the S.E.C. is left to pursue a narrow case, while Bank of America executives are trying to resolve various inquiries without dropping their position that its executives did nothing wrong, legal experts said.

“This is one more twist in a very complicated maze of parties with lots of agendas,” said David Skeel, a law professor at the University of Pennsylvania who is watching the bank’s cases. “There’s not an obvious way out for anybody here, the S.E.C. or the bank.”

Judge Rakoff’s latest ruling came on the same day that Mr. Cuomo’s office, which has sought a prominent role in cases stemming from the financial collapse, demanded information on executive pay for 2009 from Bank of America and seven other big banks that received taxpayer bailout funds. In letters to the banks, Mr. Cuomo asked the companies to disclose various details about their bonus payouts. How or whether the banks would comply with that request was unclear.

Bank of America appears to have become more amenable to working with state and federal officials since Kenneth D. Lewis announced his retirement as chief executive, which was effective on Jan. 1. Mr. Moynihan, bank insiders say, hopes to make a clean break with the legal problems left over from the Lewis years. The takeover of Merrill prompted scores of shareholder lawsuits, as well as state and federal investigations, and eventually helped drive Mr. Lewis from his post.

Judge Rakoff’s ruling on Monday barred the S.E.C. from expanding its case but allowed it to file a new one, and the commission said in a statement that it would file a second complaint. That second complaint will focus on Merrill’s gaping $15 billion in losses in the fourth quarter, which were not disclosed before the deal closed. The S.E.C. cases have some similarities to Mr. Cuomo’s, which from the start focused on Merrill’s losses. Such overlap may enable the S.E.C. to join Mr. Cuomo’s office in a global settlement and thus avoid a trial that could be embarrassing should the S.E.C. lose.

Unlike the S.E.C., Mr. Cuomo would like to have individual bank executives held responsible in the case, which could include individual fines. Those fines could come out of the executives’ pensions.

Bank analysts said the bank and its new chief executive were most likely evaluating whether the cost of a settlement was worth it for a clean footing.

“It’s a balance between the attention-grabbing headlines and settling too early,” said John McDonald, an analyst with Sanford C. Bernstein.

BofA set to reveal Merrill advice

Facing mounting pressure from multiple investigations, Bank of America’s board has voted to reveal the legal advice that the bank received late last year in its merger with Merrill Lynch.

The stunning reversal, approved by the board Friday, removes a significant hurdle in resolving a number of cases that have been brought against the bank, and may be part of the bank’s strategy to try to exonerate several executives, including its retiring chief, Kenneth D. Lewis.

Alternatively, it could provide fresh evidence of the role that the bank’s lawyers and executives played in failing to reveal losses at Merrill Lynch and bonuses Merrill paid out before the firms sealed their ill-fated merger.

The bank notified the office of Andrew M. Cuomo, the attorney general of New York, of its decision in a letter that was reviewed by The New York Times.

The disclosures are likely to reveal the advice the bank received on the merger from its longtime law firm, Wachtell, Lipton Rosen & Katz, as well as the advice of two general counsels, Timothy Mayopoulos, who was unexpectedly dismissed late last year, and Brian Moynihan, a senior executive who has emerged as one of the leading contenders to replace Mr. Lewis.

Several state attorneys general, Congressional lawmakers and regulators who are deciding whether to allow Bank of America to return some of its $45 billion taxpayer lifeline have been pressing the bank to reveal how its lawyers advised executives to deal with the disclosure of the losses and bonuses.

The bank dug in its heels for six months, citing the privacy rules that govern conversations between clients and their lawyers, even as pressure to turn over documents grew.

Cuomo said to subpoena BofA directors

"New York Attorney General Andrew Cuomo subpoenaed five members of Bank of America Corp.’s board of directors amid a probe of the bank’s purchase of Merrill Lynch & Co., said a person close to the investigation.

The board members will be asked to testify under oath, the person said. The Wall Street Journal reported on its Web site today the five directors are Thomas May, chief executive officer of NStar; William Barnet III, a Spartanburg, South Carolina, developer; retired Morehouse College President Walter Massey; Boston investment firm owner John Collins; and retired Army General Tommy Franks."

New York AG wants BofA to disclose attorneys' advice

"The New York AG's office is not buying Bank of America's defense of reliance on counsel without disclosure of the attorneys' advice. In a letter posted on its website today to BofA's outside counsel, the office stated:

"We are at the stage in our investigation in which we are making charging decisions with respect to Bank of America and its executives. However, Bank of America's indiscriminate invocation of the attorney-client privilege is hindering this Office's ability to make fair and fully informed decisions as to what charges, if any, to bring and whether individual Bank of America officers should be charged. We cannot simply accept Bank of America's officers' naked assertions that they sought and relied on advice of counsel in good faith, and that, therefore, they should not be charged. Accordingly, we request that Bank of America reconsider its decision to prevent this Office from adequately probing these crucial Issues."

The letter goes on to state that there are at least four instances in the fourth quarter of 2008 where the bank and its senior officers failed to disclose material non-public information to its shareholders. It goes on to describe "how Bank of America is improperly using the attorneyclient privilege as both a sword and a shield in defending each of its failures to disclose material information to its shareholders."

Finally, it concludes:

The law is clear that Bank of America and its officers cannot assert an advice of counsel defense for their decisions, and at the same time persist in refusing to disclose the substance of the conversations with counsel. Accordingly, we request that Bank of America reconsider its decision to prevent this Office from adequately probing these crucial issues. We provide you with this final opportunity to reconsider. Otherwise, we will proceed with our charging decisions without giving credit to the advice ofcounsel defenses that Bank ofAmerica has not permitted us to test.

BofA counsel firing is examined

"Four days after Bank of America shareholders voted to approve a merger with Merrill Lynch, Timothy J. Mayopoulos, the bank’s general counsel, was summoned to an executive suite.

There, Bank of America’s chief risk officer told Mr. Mayopoulos that he was no longer needed at the company, but she gave no explanation of the unexpected dismissal, according to two people briefed on the meeting.

Now, the timing of Mr. Mayopoulos’s dismissal is coming under a spotlight as Attorney General Andrew M. Cuomo of New York and other federal investigators examine why the bank’s executives did not tell shareholders about billions of dollars worth of bonuses as well as huge losses at Merrill Lynch before the deal.

Mr. Mayopoulos was let go the day the bank informed its board that Merrill was bleeding money at an unexpected pace. He was immediately escorted from the building without being permitted to return to his office, the people with knowledge of situation said. His dismissal came six days after Mr. Mayopoulos spoke with the bank’s chief financial officer about mounting losses at Merrill Lynch, which were not disclosed to shareholders before the deal closed.

“I’d like to know why he was dismissed,” said Charles M. Elson, a Bank of America shareholder and a professor of corporate governance at the University of Delaware. “If he was terminated because of disagreements on disclosure on Merrill, that’s relevant. It goes right back to the effectiveness of management. You can always disregard a general counsel’s advice, but the question is, Why did you?”

As general counsel, Mr. Mayopoulos was responsible for advising the bank on its disclosure decisions. It is unclear how he advised executives to handle the information on Merrill’s bonuses and losses, which some shareholders later said would have changed their mind about approving the merger.

In testimony to Mr. Cuomo’s staff in August, Mr. Mayopoulos cited legal ethics rules and declined to provide specifics on the advice he gave the bank. Mr. Cuomo asked the bank in a letter Tuesday to grant Mr. Mayopoulos and the bank’s other lawyers permission to respond. By invoking the confidentiality of legal advice, Bank of America was “hindering this office’s ability to make fair and fully informed decisions as to what charges, if any, to bring and whether individual Bank of America officers should be charged,” Mr. Cuomo’s office wrote.

Bank of America has also cited attorney-client privilege in a separate case involving the Securities and Exchange Commission, with which the bank recently reached a $33 million settlement over disclosure issues. A federal judge who has blocked the settlement has also tried to get the bank to reveal more on the role played by Mr. Mayopoulos and the bank’s other lawyers, and the bank and the S.E.C. will file new documents with that judge on Wednesday. The chairman of a Congressional committee investigating the merger has also asked the bank to reveal documents related to these legal discussions.

In testimony to Mr. Cuomo’s staff, Joe L. Price, the chief financial officer, said he relied on Mr. Mayopoulos’s advice on Dec. 3, the day before the shareholder vote, for the bank’s decision not to disclose Merrill’s mounting losses. Mr. Mayopoulos responded to Mr. Cuomo’s staff that he in turn had spoken with outside counsel about the matter. The bank’s outside law firm was Wachtell, Lipton, Rosen & Katz. Merrill Lynch worked with Shearman & Sterling. Both firms declined to comment.

Kenneth D. Lewis, Bank of America’s chief executive, told Mr. Cuomo’s office this spring that Mr. Mayopoulos’s dismissal came at a time when the bank “had more executives than we needed because of this merger.”

The bank chose one of its own executives, Brian T. Moynihan, over Merrill Lynch’s general counsel to fill the vacancy. Mr. Moynihan held the position for about a month before being shifted to head the bank’s investment banking unit.

The departure of Mr. Mayopoulos, whose family still lives in Charlotte on the same street as Mr. Lewis, surprised executives at Merrill Lynch who had been meeting with him for weeks to figure out how the combined legal department would be arranged. He was involved in such a meeting when he was called in and dismissed, two people briefed on those discussions said.

Bank of America issued a statement that said it had not in fact defended itself by saying it relied on its lawyers. The bank said it believed it had followed disclosure rules.

Mr. Mayopoulos is now the general counsel of Fannie Mae. In a Feb. 2 recommendation letter provided by his lawyer, Ed Hinson, the bank said he had served “with distinction throughout his tenure with the company.”

“The amazing thing about a guy like him is however he’s treated, he’ll do his duty,” Mr. Hinson said. “He’s not going to reveal confidential information.”

Ohio AG files suit against BofA

Ohio Attorney General Richard Cordray announced today that the Lead Plaintiff group in a securities class action lawsuit against Bank of America has filed a consolidated amended complaint. The complaint alleges that statements made in 2008 by Defendants regarding the Bank of America merger with Merrill Lynch failed to disclose billions of dollars in known losses at Merrill Lynch and Bank of America and billions more in accelerated agreed-upon bonuses to be paid to Merrill Lynch executives and employees.

“They were concealing billions of dollars in losses with one hand and clearing the way for extravagant bonus payments with the other,” said Attorney General Cordray. “This case gives the public pension funds and other shareholders a chance to stand up against Wall Street.”

The Lead Plaintiff group includes: the State Teachers Retirement System of Ohio; the Ohio Public Employees Retirement System; the Teacher Retirement System of Texas; Stichting Pensioenfonds Zorg en Welzijn, represented by PGGM Vermogensbeheer B.V.; and Fjärde AP-Fonden.

The lawsuit alleges that Bank of America, during merger negotiations, agreed to allow Merrill Lynch to pay up to $5.8 billion in discretionary year-end bonuses to its executives and employees, but failed to disclose that material information important to shareholders.

Additionally, in the two months just prior to the shareholder vote on the merger, Merrill Lynch suffered billions in losses. The complaint alleges that senior executives at both Merrill Lynch and Bank of America were aware of these massive and highly material losses but did not disclose the information to investors prior to the vote.

Even after the shareholder vote, according to the complaint, the Defendants continued to conceal highly material information from investors and knowingly made false and misleading public statements through press releases, investor calls, interviews and speeches. Not until the end of the class period, did the Defendants disclose the losses and bonus payments. Indeed, as alleged in the complaint, former Merrill Lynch CEO John Thain recently asserted that Bank of America agreed to these bonus payments and their acceleration, and if the bank stated to the contrary, it was “lying.”

The merger closed on January 1, 2009. Later that month, when the investment community learned of the billions in losses and bonus payments, Bank of America shares lost more than half their value. The New York Times described it as “one of the greatest destructions of shareholder value in financial history.”

The caption of the case is In re Bank of Am. Corp. Sec., Deriv. & ERISA Litig., No. 09-MDL-2058 (S.D.N.Y.) (Chin, J.). View the consolidated amended class action complaint.

New York Comptroller Files Suit Against Bank of America and Merrill Lynch

Yesterday, the New York State Comptroller, Thomas P. DiNapoli, announced that, in his capacity as trustee of the New York State Common Retirement Fund, he had filed separate lawsuits against Bank of America and Merrill Lynch. The suit against Bank of America arises out of the same transaction as the suit settled between the SEC and Bank of America in February. The lawsuit against Merrill Lynch seeks recovery for losses the retirement fund [suffered resulting from] allegedly suffered by Merrill’s exposure to mortgage backed securities.

The lawsuits have been filed in the U.S. District Court for the Southern District of New York.

Bond insurers say BofA owes $20B for mortgage putbaks

Bank of America Corp., the biggest U.S. lender by assets, should repurchase as much as $20 billion in home loans that were based on wrong or missing information, said a trade group for bond insurers.

More than half of the soured home-equity credit lines and residential mortgages created from 2005 through 2007 that insurers examined should be bought back, the Association of Financial Guaranty Insurers said in a Sept. 2 letter to Bank of America Chief Executive Officer Brian T. Moynihan. Ambac Financial Group Inc. and Assured Guaranty Ltd. are members, and the group said repurchases may total $10 billion to $20 billion.

Banks are dealing with more frequent demands for “putbacks” from buyers and insurers of mortgage securities who say that the loans were created with false, misleading or missing data. The repurchases have already cost the four biggest U.S. lenders $9.8 billion, according to Credit Suisse Group AG. Bank of America has said it faces $11.1 billion of unresolved claims, which it reviews on a “loan-by-loan” basis.

“This defensive posture will soon prove ineffective in shielding Bank of America from the financial, accounting, legal and other implications of its massive obligations to our industry members,” Teresa Casey, executive director of AFGI, said in the letter.

Bank of America declined to comment on the letter, said Jerry Dubrowski, a spokesman for the Charlotte, North Carolina- based firm. The lender hasn’t yet responded to the insurer group, Casey said today in a telephone interview. Insurers have requested files on about $9.8 billion of loans that haven’t been accompanied by buyback claims as of June 30, according to Bank of America’s quarterly report.

MBIA suing Countrywide for fraud

MBIA Insurance can proceed with a lawsuit alleging Bank of America Corp.’s Countrywide Financial committed fraud in obtaining insurance on billions of dollars of mortgage-backed securities, a judge ruled.

The insurer, based in Armonk, New York, claimed in its suit that Countrywide “falsely represented” to MBIA, and to investors in trusts holding the securities, that Countrywide originated the mortgage loans in strict compliance with its underwriting standards and guidelines. The insurer has covered more than $459 million of losses as a result, MBIA said in the 2008 complaint.

New York State Supreme Court Justice Eileen Bransten, in Manhattan, denied Bank of America and Countrywide’s renewed motion to dismiss the bond insurer’s fraud claim. In the April 27 ruling made public today, Bransten also refused to dismiss a claim of successor and vicarious liability against Bank of America, which acquired Countrywide in 2009.

Bransten dismissed a claim by MBIA of “negligent misrepresentation,” against Countrywide, ruling the plaintiff had failed to show the commercial relationship existed between the two that would support the allegation.

Shareholders sue BofA directors over Merrill acquisition

Bank of America Corp., the largest U.S. lender by assets, failed to persuade a Delaware judge to dismiss a shareholder lawsuit challenging the fairness of its $33 billion stock-swap buyout of Merrill Lynch & Co.

Shareholders including Nancy Rothbaum sued directors of the Charlotte, North Carolina-based bank alleging they may have paid too much for Merrill in January and owe the bank damages.

The board and then-Chairman Kenneth D. Lewis had information relevant to a vote by shareholders “and consciously chose not to disclose it,” allegedly for “high-minded reasons,” Delaware Chancery Court Judge Leo Strine Jr. said at a hearing today, paving the way for trial.

The brokerage, founded by Charles E. Merrill in 1914, suffered at least $50 billion in losses and writedowns linked to the collapse of the U.S. subprime mortgage market before agreeing to the sale in September 2008.

The consolidated lawsuit contends Lewis and other board members knew the broker’s financial condition was worse than disclosed, with an eventual $15.4 billion fourth-quarter loss, and completed the buyout anyway.

Testifying before New York prosecutors in February, Lewis said he was told by U.S. Treasury and Federal Reserve officials not to reveal to stockholders the deteriorating condition of Merrill because it might hurt the teetering U.S. financial system, according to the Wall Street Journal.

During today’s hearing in Wilmington, Delaware, on the board’s motion to dismiss the case, Strine referred to court papers saying Lewis told then-U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. that Bank of America was thinking about terminating the Merrill buyout.

Strine said Lewis claimed Paulson warned him that if the bank backed out, the directors would be removed from their jobs.

In defense of the bank, Strine said because of the benefit to the U.S. economy, there were also “high minded” motives to go ahead with the deal despite Merrill’s financial condition.

“This is a stew of great complexity,” Strine said.

Role in subprime crisis

Source: Bank of America Fact Sheet Showdown in Chicago

  • Bank of America had a hand in the worst of the subprime lending excesses, providing financing to four of the five largest subprime lenders during the years prior to the crash: It helped to finance Countrywide Financial, the country’s #1 subprime lender; it purchased and securitized loans from Ameriquest, the #2 subprime lender; it financed loan originations by New Century Financial Corp, the #3 subprime lender; and the bank partnered with First Franklin, the #4 subprime lender, to securitize and sell its subprime loans. Between them, these four firms issued over $320 billion in subprime loans from 2005-2007.
  • Merrill Lynch, which Bank of America acquired in 2009, owned the #4 subprime lender, the now closed First Franklin Corp.
  • In July 2008, BofA acquired Countrywide Financial, which at the end of 2007, had $15.1 billion worth of mortgages in its loan servicing portfolio in foreclosure.
  • Countrywide was investigated by the FBI, the U.S. Justice Department, and multiple state attorney general offices in 2008 for predatory lending and securities fraud. BofA is still dealing with Countrywide’s legal problems, which included numerous lawsuits, some of which have settled, that were brought against the company for its allegedly abusive lending practices and financial practices.
  • Since taking over Countrywide, BofA has failed to adequately change course. BofA initially praised the Countrywide business model and offered its president and COO a $28 million retention bonus to stay and head BofA’s mortgage operations. Although BofA agreed to get rid of him after a public outcry, he got to keep the $28 million anyway.
  • Following the Countrywide acquisition, BofA became the largest underwriter of mortgage backed securities in the country. While BofA itself stopped originating subprime mortgage loans in 2001, it continued to package subprime mortgage-backed securities. This allowed subprime lenders to bundle up their loans and sell them to investors without worrying about the borrowers’ ability to repay. It encouraged other banks to keep making subprime loans, and made it possible for the subprime crisis to grow.
  • BofA continues to make money off of subprime securitizations. In September it was announced that BofA will be underwriting a $239 million subprime securitization backed by loans from the CIT Group which was recently on the verge of filing for bankruptcy.

BofA by bonus, profit and lobbying figures

Source: Bank of America Fact Sheet Showdown in Chicago

  • Federal taxpayer bailout funds received: * ~~ $199.0 billion
  • Profits for the years 1998-2008†: ~~ $135.0 billion
  • Profits for the first half of 2009: ~~ $7.47 billion

  • Bank account fees for last 10 years: ~~ $66.9 billion
  • Bank account fees for first half of 2009: ~~ $5.26 billion
  • Change in bank account fee revenue (2003-08): ~~ +104.6%
  • Percent of first half 2009 profit from fees: ~~ 70%

  • Credit card income for first half of 2009: ~~ $5.01 billion

  • Median BofA bank teller wage: ~~ $10.73/hour, or $22,328 annually
  • 2007-08 CEO Ken Lewis pay: ~~ $34.8 million (779 times the median teller wage)
  • 2008 bonus pool‡: ~~ $6.9 billion
  • First half 2009 bonuses and compensation pool: ~~ $16.6 billion
  • Cash bonuses (top 5 execs) last 10 years§: ~~ $459.9 million

  • Effective tax rate in 2008: ~~ 9.5%
  • Offshore subsidiaries in tax havens**: ~~ 143

  • Lobbying fees in 9 months after bailout: ~~ $3.6 million
  • Campaign contributions in 2008 federal elections:†† ~~ $7.2 million

(*) Includes federal guarantee programs BofA recently announced it was exiting. † Includes profits for Bank of America for 1999-2008 ($112.7 billion) and Merrill Lynch for 1998-2007 ($22.2 billion), since Merrill Lynch’s 2008 losses largely wiped out all the profits from the previous ten years. ‡ Includes bonuses at Bank of America ($3.3 billion) and Merrill Lynch ($3.6 billion). § Includes bonuses at Bank of America ($138.7 million) and Merrill Lynch ($321.2 million) for 1998-2007. (**) Includes 115 Bank of America subsidiaries, 21 Merrill Lynch subsidiaries and 7 Countrywide subsidiaries. †† Includes contributions made by the bank's political action committee and its employees in the 2008 federal election cycle. Includes both Bank of America and Merrill Lynch

BofA pays $108 to settle Countrywide charges

Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corp., which it acquired nearly two years ago, collected outsized fees from borrowers facing foreclosure.

It's the latest evidence of misconduct at Countrywide, once an industry giant that has since fallen. Last year, three top executives, including former CEO Angelo Mozilo, were charged with civil fraud and insider trading by the Securities and Exchange Commission.

The settlement, which seeks to refund money to about 200,000 borrowers, was announced Monday by the Federal Trade Commission. It is the largest mortgage industry settlement for the agency, which oversees non-banking functions such as debt collection. The FTC has been criticized for failing to protect consumers from abuse by financial companies.

Merrill to pay $26.5M to settle sales probe

"The Texas state securities commissioner said Bank of America's Merrill Lynch unit will pay up to $26.5 million in a national settlement stemming from a Texas claim that the brokerage allowed unregistered salespeople to sell securities.

Texas will receive $1.6 million in the settlement with Merrill Lynch, Pierce, Fenner & Smith Inc. The Texas State Securities Board led a task force that investigated the broker's "failure to supervise its client associates," Commissioner Denise Voight Crawford said in a Tuesday release.

The amount that other states will receive wasn't disclosed in the Sept. 4 consent order.

The probe followed a tip from a Merrill employee made in May 2008, before the broker was bought by Bank of America. The tip said the company saved registration fees by having client associates register in just two states, their home state and one neighboring state.

Since client associates accept trade orders, they should be registered in the client's state as well as their home state. The Texas investigation found that Merrill's supervisory system "was not reasonably designed to ensure that its client associates complied with registration requirements."

Besides Texas, the multi-state task force included Colorado, Arizona, Missouri, Vermont, New Hampshire and Delaware. Crawford said the task force members suspect similar registration issues may exist at other financial services firms."


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