Bank of America Corp
Bonuses paid at Merrill and other banks became a hot-button issue last year with a public outcry and several investigations, including one by New York Attorney General Andrew Cuomo and other state prosecutors.
Cuomo's office said last week that $33 billion was paid in bonuses at nine banks, including Merrill, that were among the first recipients of U.S. taxpayer money to help them survive.
In announcing the civil charges and settlement with Bank of America, the SEC said the bank had neither admitted nor denied the allegations. The agency said its investigation was continuing.
Marshall Front, chairman of Front Barnett Associates investment counseling firm in Chicago, said the settlement did not change the fundamental outlook for the bank but was a concern for its chairman, Kenneth Lewis.
This is not something that I would worry about as an investor, Front said. Ken Lewis should worry about it, but not an investor.
In a lawsuit filed in Manhattan federal court, the SEC said Bank of America told investors that Merrill had agreed not to pay year-end performance bonuses or incentive compensation before the January 1, 2009, merger of the firms without Bank of America's permission.
But, in fact, Bank of America had authorized Merrill to pay discretionary year-end bonuses, according to the SEC. Merrill paid $3.6 billion in bonuses for 2008 despite losing $27.6 billion that year.
As Merrill was on the brink of bankruptcy and posting record losses, Bank of America agreed to allow Merrill to pay its executives billions of dollars in bonuses, David Rosenfeld, associate director of the SEC's New York Regional Office, said in a statement. Shareholders were not told about this agreement at the time they voted on the merger.
The SEC said Bank of America misled investors in proxy statements soliciting votes of shareholders on the proposed acquisition of Merrill. The agency said the bank had already contractually authorized Merrill to pay up to $5.8 billion in bonuses for 2008.
Bank of America said the settlement represents a constructive conclusion to this issue.
This is an important step forward for Bank of America and allows us to focus our energies on enhancing stockholder value by continuing to execute our strategies for the long-term success of our business, the bank said in a statement.
Cuomo, New York state's top legal officer, said on Monday that we want to be clear that our investigation of these and other matters will continue.
Members of the U.S. Congress have expressed outrage over the Bush administration's involvement in the deal between Bank of America and Merrill. Some have accused Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson of coercing Lewis to go ahead with acquiring Merrill despite the investment bank's deteriorating finances.
(Reporting by Grant McCool and Phil Wahba; additional reporting by Elinor Comlay in New York and Rachelle Younglai in Washington; editing by John Wallace)