BofA Charged With Misleading Investors In Merrill Merger, Penalized $33M

Aug. 3, 2009— -- Bank of America has agreed to pay a $33 million penalty after the Securities and Exchange Commission charged the bank with making misleading statements to investors about billions of dollars in bonuses paid to Merrill Lynch execs during their controversial merger last winter, the government announced today.

The thrust of the civil complaint is Bank of America allegedly failed to disclose to their shareholders information about the bonuses, even though they knew bonuses would be paid out.

"Bank of America specifically agreed to allow Merrill to pay up to $5.8 billion in year end bonuses," the SEC stated in the complaint.

"Not only did the proxy materials fail to include the [payment] schedule or otherwise disclose that Bank of America had authorized Merrill to pay up to $5.8 billion in discretionary year end bonuses, but…the merger agreement, which was disclosed, stated the contrary --that Merrill had no authority to, and would not pay discretionary bonuses to its employees."

In settling the case, Bank of America said that it was not "admitting or denying the SEC's allegations.

The SEC complaint alleged that Bank of America had made false and misleading statements.

"Bank of America made materially false and misleading statements and omitted to disclose necessary material facts in the proxy statement that it filed in connection with its merger with Merrill concerning the terms of the merger agreement," the SEC charged.

"Because there is no disclosure at all of the contents of the Schedule anywhere in the merger agreement or elsewhere in the proxy statement, shareholders would not have known that Bank of America had actually agreed to allow Merrill to pay up to $5.8 billion in discretionary bonuses...

Robert Khuzami, director of the SEC's Enforcement Division, said in a statement, "Companies must give shareholders all material information about corporate transactions they are asked to approve. 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."

The complaint is the latest development in the story of the controversial merger.