NEW YORK—The U.S. Securities and Exchange Commission (SEC) plans to widen its investigation into whether Bank of America Corp. misled its investors over more than $3 billion in bonuses paid to Merrill Lynch employees late last year.
Charlotte, N.C.-based Bank of America (BofA) was accused of having allowed the bonuses last December while knowing the extent of financial losses at Merrill Lynch & Co. prior to its acquisition of the company. BofA, according to the SEC, had suggested to its shareholders that the bonuses would not be granted.
The two sides reached a $33 million settlement last month, but U.S. District Judge Jed Rakoff tossed out the settlement, arguing that it would serve to penalize the shareholders, not management.
In a statement, the SEC vowed to “vigorously pursue” the charges against BofA in court.
“As we alleged in our complaint last month, Bank of America did not provide investors with complete and accurate information about the bonuses to be paid by Merrill Lynch to employees,” the SEC said in a statement. “We believe that this disclosure failure violated the federal securities laws.”
The SEC’s charges stem from BofA’s acquisition of Merrill Lynch last year. Merrill’s financial position had been deteriorating after the announced deal in September, but CEO John Thain approved a $3 billion bonus payment in December days prior to the close date. The SEC claims that BofA had known and approved of the bonuses while communicating to its shareholders that the bonuses would not be paid.
New York Attorney General Andrew Cuomo is also probing possible wrongdoing by BofA in the Merrill deal.
Terminates Fed Guarantee
In a related move, an on-the-mend BofA announced this week that it will pay the U.S. government $425 million to terminate an unused $118 billion asset guarantee pool provided by the Federal Reserve in connection with BofA’s Merrill acquisition.
The Fed offered the guarantee late last year after BofA sought to back out of its Merrill deal upon discovering that the financial condition at the brokerage house was much worse than originally thought. Merrill lost a record $15 billion during the fourth-quarter of 2008.
In a separate decision, BofA announced on Tuesday that it would exit from a Federal Deposit Insurance Corporation program that guaranteed the bank’s debt.
The moves are part of BofA’s larger strategy to extricate itself from the grip of the federal government.
In a statement, CEO Kenneth Lewis said that BofA is now a “stronger company” than a few months ago, and will seek future capital from normal market means.
