Bank of America to Pay $33 Million Fine for Misleading Investors

Bank of America Corp. will pay a $33 million penalty for misleading hundreds of thousands of investors about executive bonuses to be paid to Merrill Lynch executives when the bank acquired the ailing financial firm last year.

The huge fine settles charges brought by the Securities and Exchange Commission, which had accused Bank of America of circulating “materially false and misleading” statements to 283,000 shareholders of both companies before the blockbuster merger was finalized.

According to the SEC, Bank of America told investors that Merrill would not pay end-of-the-year bonuses to its executives without permission from Bank of America. However, the statement sent to investors failed to mention that Bank of America had already authorized Merrill to pay as much as $5.8 billion in bonuses to its executives.

While Bank of America agreed to pay the fine to settle the charges, the company did not admit wrongdoing. A company statement called the find “a constructive conclusion to the issue.”

Bailout Funds Down the Drain?

Bank of America has received about $45 billion in federal aid, ranking it among the largest recipients of government aid in the federal bank rescue program. New York Attorney General Andrew Cuomo said he is continuing to investigate the bonus matter.

Merrill was purchased by Bank of America in September 2008, just as the nation’s financial crisis was gaining speed toward what would become record losses. The merger came just as the collapse of another Wall Street giant, Lehman Bros., was announced.

Misleading Proxy Sent to Investors

When shareholders approved Bank of America’s acquisition of Merrill, they were told in a proxy statement that Merrill would not pay discretionary bonuses before the deal closed, according to the SEC. Shareholders were not sent a separate agreement authorizing the bonuses, federal authorities said.

“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.”

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