Bank of America Agrees to $33-Million SEC Fine Over Merrill Bonuses

August 4, 2009 - 5:23 AM
In seeking approval to buy Merrill, Bank of America told investors that Merrill would not pay year-end bonuses without Bank of America's consent. But the SEC said Bank of America had authorized New York-based Merrill to pay up to $5.8 billion in bonuses.
Washington (AP) - Bank of America Corp. has agreed to pay a $33 million penalty to settle government charges that it misled investors about Merrill Lynch's plans to pay bonuses to its executives, regulators said Monday.
 
In seeking approval to buy Merrill, Bank of America told investors that Merrill would not pay year-end bonuses without Bank of America's consent. But the Securities and Exchange Commission said Bank of America had authorized New York-based Merrill to pay up to $5.8 billion in bonuses.
 
That rendered a statement Bank of America mailed to 283,000 shareholders of both companies about the Merrill deal "materially false and misleading," the SEC said in a statement.
 
Bank of America agreed to pay $33 million to settle the charges without admitting or denying the allegations. The settlement is subject to court approval.
 
"Bank of America believes that the settlement ... represents a constructive conclusion to this issue," company spokesman Scott Silvestri said in an e-mailed statement.
 
New York Attorney General Andrew Cuomo, who referred the case to the SEC in April, said his investigation is continuing. The SEC said its probe also is ongoing.
 
Bank of America, along with Citigroup Inc. and insurance giant American International Group, is among the largest recipients of government aid. It has received $45 billion from the federal $700 billion bank rescue program.
 
Charlotte, N.C.-based Bank of America agreed to purchase Merrill in a deal that was hastily arranged Sept. 13-14, 2008, the same weekend that Lehman Brothers collapsed. Bank of America CEO Ken Lewis and Merrill Lynch CEO John Thain announced the deal Sept. 15.
 
The acquisition came as Lehman's collapse caused panic in the financial markets and investment banks such as Merrill faced billions of losses on soured mortgage investments.
 
Merrill ended up paying $3.6 billion in bonuses in 2008, the SEC said, even though it lost $27.6 billion that year, a record for the firm.
 
Bank of America included a copy of the merger agreement with the proxy statement that it mailed to shareholders of both firms in November. That agreement said Merrill would not pay discretionary bonuses prior to the deal's closing, the SEC said.
 
A separate agreement authorizing the bonuses wasn't mailed to shareholders, the SEC said.
 
Shareholders in both companies voted to approve the acquisition Dec. 5, which then closed Jan. 1. The SEC said the bonuses were paid Dec. 31.
 
"Companies must give shareholders all material information about corporate transactions they are asked to approve," said Robert Khuzami, director of the SEC's enforcement division. "Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty."
 
The bonuses amount to nearly 12 percent of the $50 billion that Bank of America paid for Merrill.
 
Separately, Bank of America announced that Sallie Krawcheck, Citigroup's former chief executive of global wealth management, will join the company to run its global wealth and investment management operations.
 
Krawcheck, 44, also has served as chief financial officer of Citigroup, as chairman and CEO of Sanford C. Bernstein & Co. Inc., and an executive vice president of Bernstein's parent company, Alliance Capital Management LP.
 
Shares of Bank of America added 53 cents, or 3.6 percent, to $15.32 Monday. The company's stock has traded between $2.53 and $39.50 in the last year.
 
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AP Business Writers Ieva M. Augstums in Charlotte and Stephen Bernard in New York contributed to this report.