Washington: The Securities and Exchange Commission and Bank of America Corp. on Monday defended the fairness of their proposed USD 33 million settlement over executive bonuses paid out by Merrill Lynch, and the bank maintained it didn`t mislead investors in the affair.
In a court filing, Bank of America suggested that shareholders should have already known about the USD 3.6 billion in bonuses given the media attention surrounding its takeover of Merrill after it was first announced last September.
"There was no false or misleading statement or omission" in a proxy statement for voting shareholders, Bank of America said in its filing to US District Judge Jed Rakoff in Manhattan, who has held up approving the settlement. In addition, the bank noted that Merrill disclosed the size of its bonus pool when it reported financial results earlier in 2008.
With their separate filings, the SEC and Bank of America met the Monday deadline set by Rakoff two weeks ago for them to provide fuller information so that he can decide whether to approve the settlement announced August 6. After a period of review, Rakoff could rule or order additional hearings.
The SEC "respectfully submits that the proposed settlement is fair, reasonable, adequate and squarely in the public interest," the agency said in its filing to Rakoff.
The SEC said its civil charges against Bank of America of misleading investors about the bonuses are in line with the evidence in the case. The $33 million proposed fine "fully takes account of the seriousness of the misconduct and the need for deterrence, while giving due consideration to the protection of innocent shareholders," it said.
The bank, without admitting or denying the allegations, agreed to pay the fine to settle charges that it misled investors about Merrill`s plans to pay bonuses to executives even as it prepared to report billions in losses. Those losses affected Bank of America`s bottom line after its takeover of the troubled investment bank was completed.
Charlotte, NC-based Bank of America is one of the biggest US banks as well as one of the largest recipients of aid under the government`s financial bailout program, getting USD 45 billion. The SEC said in its filing that the government`s capital investment in the bank doesn`t change the standard the agency applied in arriving at the USD 33 million penalty.
At issue is Bank of America`s failure to disclose the bonuses to shareholders, the SEC said; the payment of the bonuses itself didn`t violate the securities laws.
Neither the amount of the bonuses paid by Merrill nor the source of the money to pay them — whether taxpayers` money was indirectly used, for example — "is a proper gauge of the nature or severity" of the violation and the penalty, the SEC said.
Bank of America has said that taxpayer money would not be used to pay the settlement.
Merrill ended up paying the USD 3.6 billion in bonuses in 2008, the SEC has said, even though it lost USD 27.6 billion that year, a record for the firm. The bonuses amount to nearly 12 percent of the USD 50 billion that Bank of America paid to acquire Merrill in the deal that was completed on January 1.
Bank of America, which has been under intense scrutiny for the bonus payments, maintained in its brief that the USD 33 million civil penalty represented a "constructive conclusion" to the situation.
Regulators have claimed that Bank of America had said in its proxy statement that it would not pay out bonuses to Merrill employees in fiscal year 2008, when, in fact, the bank authorized bonus payments of as much as USD 5.8 billion.
The acquisition and bonus payments have caused Bank of America internal problems and angered some shareholders. Bank of America`s CEO Ken Lewis` management ability has been questioned and shareholders stripped him of his chairman`s title in April.
Bank spokesman Scott Silvestri declined to provide additional comment beyond Monday`s filing.
The bank agreed to purchase Merrill in a deal that was hastily arranged September 13-14, 2008, the same weekend that Lehman Brothers collapsed. Lewis and Merrill CEO John Thain announced it on September 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.
Lewis Liman, an attorney representing Bank of America, has said the average award amounted to USD 91,000, which he described in the Aug. 10 court hearing as "not a lot of money" — a point Rakoff quickly contested. Liman also said the bonuses were a "retention tool" needed to prevent employees from deflecting to competitors.