SEC ramps up charges against BofA

Federal regulators have expanded their charges against Bank of America Corp. over billions in bonuses paid at Merrill Lynch, accusing the bank of failing to disclose mounting losses at Merrill before a shareholder vote approving the combination of the two firms.

The Securities and Exchange Commission announced Monday it had asked a federal judge in Manhattan to allow it to file the new charges against the biggest U.S. bank.

The SEC and Charlotte, N.C.-based Bank of America are scheduled to go to trial on March 1. The SEC previously accused Bank of America of failing to disclose to shareholders payment of the bonuses to Merrill employees after Merrill was acquired a year ago by the bank. Last fall, the judge threw out a proposed $33 million settlement of those charges and rebuked the SEC for not pursuing charges against individual executives of Bank of America.

The SEC said Monday it was seeking to charge the biggest U.S. bank with failing to disclose “extraordinary financial losses” at Merrill in the two months preceding the shareholders’ Dec. 5, 2008, vote approving the takeover of the storied Wall Street brokerage house.

The regulators said they would allege that Bank of America “erroneously and negligently concluded that no disclosure concerning these extraordinary losses was required as shareholders were called upon to vote on the proposed merger with Merrill Lynch.”

Spokesmen for Bank of America didn’t immediately return a telephone call seeking comment.

The $20 billion takeover deal was forged at the height of the financial crisis, on the same September weekend that Lehman Brothers collapsed. It was first questioned after Bank of America disclosed that Merrill would post 2008 losses of $27.6 billion — far more than expected. Bank of America, which had already received $25 billion in U.S. bailout aid, then asked for and received an additional $20 billion from the government to help offset those losses.

The SEC noted in its announcement Monday that Merrill had a net loss of $4.5 billion in October 2008 and estimated that it had sustained billions of dollars of additional losses in November. The actual and estimated losses together represented about a third of the value of the merger at the time of the December shareholder meeting and more than 60 percent of the total losses that Merrill posted in the preceding three quarters, the SEC said.

The agency said that Merrill’s “slumping performance represented a fundamental change” to the information that Bank of America had provided to shareholders in its Nov. 3 proxy statement seeking their votes to approve the merger. The bank also had promised to update its disclosures to shareholders with any substantial changes, the SEC said. Its failure to do so made its prior disclosures “materially false and misleading,” the SEC said.

Related Topics: Bank Of America Corp., Merrill Lynch, Securities and Exchange Commission