Bank of America hit with $33M penalty over Merrill bonuses
The Securities and Exchange Commission today charged Bank of America with misleading investors about billions of dollars in bonuses that were paid to Merrill Lynch & Co. Inc. executives just before BofA acquired the New York brokerage house in January.
The Securities and Exchange Commission today charged Bank of America with misleading investors about billions of dollars in bonuses that were paid to Merrill Lynch & Co. Inc. executives just before BofA acquired the New York brokerage house in January.
Bank of America Corp. of Charlotte, N.C., agreed to settle the SEC charges and pay a penalty of $33 million without admitting or denying the allegations.
In proxy materials soliciting the votes of shareholders on the proposed $50 billion acquisition of Merrill Lynch, BofA stated that Merrill Lynch had agreed it would not pay yearend performance bonuses or other discretionary compensation to its executives prior to the closing of the merger without the bank’s consent.
“In fact, contrary to the representation in the merger agreement, [BofA] had agreed that Merrill could pay up to $5.8 billion — nearly 12% of the total consideration to be exchanged in the merger — in discretionary yearend and other bonuses to Merrill executives for 2008,” the SEC said in a complaint it filed in the U.S. District Court for the Southern District of New York in Manhattan.
BofA’s agreement to allow Merrill Lynch to pay the discretionary bonuses was in a separate document that was omitted from the proxy statement sent to 283,000 shareholders of both companies in November, the SEC said in its complaint.
Merrill Lynch ended up paying $3.6 billion in bonuses to its executives despite a record loss of $27.6 billion in 2008, the SEC complaint said.
While none of Merrill Lynch’s top five executives received a bonus for 2008, other employees received their bonuses on Dec. 31, 2008, the day before the merger with BofA closed, the SEC said in the complaint.
A BofA official did not returns calls for comment.
“As Merrill was on the brink of bankruptcy and posting record losses, [BofA] agreed to allow Merrill to pay its executives billions of dollars in bonuses,” David Rosenfeld, associate director of the SEC’s New York regional office, said in a statement.
Shareholders were not told about the agreement at the time they voted on the merger, he said.
“Companies must give shareholders all material information about corporate transactions they are asked to approve,” Robert Khuzami, director of enforcement at the SEC, said in the statement.
“Failing to disclose that a struggling company will pay out billions in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” he said.
BofA’s purchase of Merrill Lynch, which was negotiated after the collapse of Lehman Brothers Holdings Inc. of New York in September, was the subject of congressional hearings that focused on whether former Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke put undue pressure on BofA to complete the purchase after large losses at Merrill Lynch were made public.
Rep. Darrell Isa, R-Calif., the ranking minority member of the House Committee on Oversight and Government Reform, issued a statement pledging that his committee would continue investigating the merger.
“While the settlement [BofA] reached with the SEC does not include an admission of liability, the circumstances certainly underscore the need for us to continue our investigation of the BofA-Merrill Lynch acquisition and the role officials at the Treasury and Federal Reserve had in pressuring the acquisition to move forward,” he said in a statement.
The settlement is subject to court approval, and the SEC said its investigation is continuing.
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