Bank of America settles SEC complaint over Merrill bonuses for $33 million

Exclusive reporting for FinReg21 by Darrell Delamaide

A new twist in the Bank of America-Merrill Lynch saga came with the announcement Monday that Bank of America would pay $33 million to settle an SEC complaint that it misled shareholders regarding $5.8 billion in bonuses paid to Merrill employees.

As is customary with SEC settlements, Bank of America neither admitted nor denied wrongdoing.

The SEC alleged in a civil complaint that Bank of America, in proxy materials soliciting the votes of shareholders on the proposed acquisition, said that Merrill had agreed it would not pay year-end performance bonuses without Bank of America’s consent.

In fact, the complaint says, Bank of America had already contractually authorized Merrill to pay up to $5.8 billion in discretionary bonuses to Merrill executives for 2008. According to the SEC's complaint, the disclosures in the proxy statement were rendered materially false and misleading by this prior undisclosed agreement.

The acquisition of Merrill Lynch by Bank of America, agreed upon in the heat of the financial crisis as Merrill Lynch was on the verge of collapse last September, has become a source of controversy after Bank of America CEO Ken Lewis claimed he was pressured by U.S. government officials to go through with the acquisition even though he had second thoughts.

His claims have led Congressional lawmakers to grill Federal Reserve chairman Ben Bernanke and former Treasury Secretary Henry Paulson about whether they had threatened to fire Bank of America management if they reneged on the deal. Both Bernanke and Paulson denied the claim.

Now the SEC complaint finds that Bank of America misled shareholders on a crucial disclosure about the acquisition. The $5.8 billion pre-approved for bonuses represents 12 percent of the overall $50 billion value of the acquisition.

“Companies must give shareholders all material information about corporate transactions they are asked to approve,” the new SEC director of enforcement, Robert Khuzami, said. “Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today's settlement.”

This may not be the last penalty coming out of the Bank of America-Merrill Lynch transaction. The SEC said the probe of the deal—which is being conducted jointly with federal prosecutors in New York and North Carolina, the FBI, and the Special Inspector General for the Troubled Asset Relief Program—is ongoing.

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Posted : Monday 03 August 2009 21:25 | Managing Editor

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