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.

Merrill Lynch Bonuses Still Causing Controversy

Bank of America took over Merrill last winter in a deal that has generated a great deal of controversy ever since, especially since Merrill paid out the bonuses while the bank was losing over $15 billion.

The House Oversight and Government Reform committee recently conducted an investigation into the issue after Bank of America's CEO Ken Lewis testified before New York Attorney General Andrew Cuomo that he proceeded with the merger after the Treasury Department and the Federal Reserve threatened the removal of board members if the bank backed out. The House panel held three hearings earlier this summer, featuring Lewis on June 11, Fed chief Ben Bernanke on June 25, and former Treasury Secretary Hank Paulson on July 16.

Under pressure from the government, Lewis continued with the merger and the government handed over $10 billion in bailout funds. All three witnesses testified that the merger had worked out well for all parties, including averting a collapse of the financial system.

But lawmakers complained about a lack of transparency. The SEC was largely kept in the dark about the government pressure on Lewis, with Rep. Darrell Issa, R-Calif., alleging that Bernanke had orchestrated a "cover-up" to hide information from other government agencies.

The SEC said their investigation is ongoing.

In a statement, Bank of America noted that they have not admitted any guilt in the SEC's allegations.

"Bank of America believes the settlement, which it entered into without admitting or denying the SEC's allegations, 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 has now received a total of $45 billion in TARP money. The bank has yet to pay the money back.

Said Issa, "While the settlement Bank of America reached with the SEC does not include an admission of liability, the circumstances certainly underscore the need for us to continue our investigation of the Bank of America – Merrill Lynch acquisition and the role officials at the Treasury and Federal Reserve had in pressuring the acquisition to move forward."

Cuomo issued a statement noting, "We are pleased to see that the SEC has taken action with respect to the Bank of America-Merrill Lynch bonus matter." He called the Merrill Lynch bonuses a "surprising fit of corporate irresponsibility."

Cuomo said his office was also continuing to investigate.

"While the SEC has settled their action today, we want to be clear that our investigation of these and other matters pursuant to New York's Martin Act will continue," he said.

ABC News' Zunaira Zaki contributed to this report.