Bank of America settles with SEC over Merrill bonuses

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NEW YORK & WASHINGTON, DC - The long-running investigation of Merrill Lynch's 2008 bonus payments by the US Securities and Exchange Commission (SEC) has resulted in Bank of America settling on the regulator's charges for a $33 million penalty.

The SEC alleges Bank of America misled its shareholders over the bonus payments, paid ahead of schedule by Merrill Lynch during the firm's takeover by Bank of America.

The regulator says Bank of America gave its shareholders misleading assurances that it had reached an agreement with Merrill that the investment bank would not pay year-end performance bonuses or other discretionary compensation to its executives before the closing of the merger, without Bank of America's consent.

In reality, the SEC says, Bank of America had already authorised Merrill to pay up to $5.8 billion in discretionary bonuses to Merrill executives for 2008, rendering the disclosures made in Bank of America's proxy statement to investors false and misleading.

"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 and warrants the significant financial penalty imposed by today's settlement."

Despite settling with the SEC, Bank of America still faces an ongoing investigation by New York state attorney-general Andrew Cuomo, who on July 30 released his report on the bonus payments made by banks that have been recipients of the US Treasury's Troubled Assets Relief Program (Tarp).

Cuomo has pledged, in a statement relating to the SEC settlement, to continue investigating the bonus payments of the banks (both Tarp recipients) under the powers of New York's Martin Act, 1921, which grants the attorney-general sweeping powers beyond those of any other state regulator, to combat financial fraud.

"We are pleased to see the SEC has taken action with respect to the Bank of America-Merrill Lynch bonus matter, which this Office referred to the SEC on April 23," said Cuomo. "As we outlined in a letter to Congress on February 10, the timing of the bonuses, as well as the disclosures relating to them, constituted a 'surprising fit of corporate irresponsibility'. While the SEC has settled its action today, we want to be clear that our investigation of these and other matters pursuant to New York's Martin Act will continue."

You can read the SEC's announcement of its Bank of America settlement here, and Cuomo's bonuses report here.

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