BofA settles Merrill bonus case with SEC for $33 million

NEW YORK Mon Aug 3, 2009 5:06pm EDT

A taxi speeds past a Bank of America branch in New York's Times Square January 11, 2008. REUTERS/Brendan McDermid

A taxi speeds past a Bank of America branch in New York's Times Square January 11, 2008.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Bank of America Corp has agreed to pay $33 million to settle charges by the U.S. Securities and Exchange Commission that it made false and misleading statements to investors about bonuses when it took over Merrill Lynch & Co.

The country's largest bank and the regulator announced the settlement on Monday amid continuing investigations into billions of dollars paid to executives at Wall Street firms in 2008 even as they made huge losses in the financial crisis.

The bank neither admitted nor denied the allegations, which were made in a lawsuit filed in Manhattan federal court on Monday. The settlement was announced almost immediately, but the SEC 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."

The bank said on Monday that it has hired Citigroup Inc veteran Sallie Krawcheck to head its wealth management operations, making her a potential candidate to succeed Lewis [ID:nN03523288]. Lewis has run the bank since 2001. He was stripped of his role as the bank's chairman in April.

Bonuses paid at Merrill and other banks became a hot-button issue last year with a public outcry and several probes, including one by New York Attorney General Andrew Cuomo.

His 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.

The SEC lawsuit said Bank of America told investors in proxy documents about the $50 billion Merrill takeover that Merrill had agreed it would not pay year-end performance bonuses or incentive compensation before the January 1, 2009, deal closed.

"In fact, Bank of America had already contractually authorized Merrill to pay up to $5.8 billion in discretionary bonuses to Merrill executives for 2008," the SEC said.

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."

Bank of America said the settlement "represents a constructive conclusion to this issue."

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.

Edolphus Towns, chairman of the U.S. House of Representatives Oversight and Government Reform Committee, said committee hearings and investigations had uncovered "very troubling facts that we will continue to explore."

(Reporting by Grant McCool and Phil Wahba; Additional reporting by Elinor Comlay in New York and Rachelle Younglai in Washington; Editing by John Wallace, Gary Hill)

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