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SEC Gets Tougher With Bank of America

The Securities and Exchange Commission might seek additional charges as it prepares for a trial against Bank of America.
The Securities and Exchange Commission might seek additional charges as it prepares for a trial against Bank of America. (By Mark Lennihan -- Associated Press)
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By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, September 22, 2009

The Securities and Exchange Commission said Monday that it will broaden its investigation into alleged wrongdoing at Bank of America and may seek additional charges as it prepares for a trial against the bank.

The move was the latest effort by the agency to combat the impression that it took a soft approach in a high-profile investigation stemming from Bank of America's acquisition last year of Merrill Lynch. The SEC suffered a serious setback last week when a federal judge ordered a trial after rejecting a $33 million settlement in the case.

"[W]e will vigorously pursue our charges against Bank of America and take steps to prove our case in court," the SEC said in a statement. "We will use the additional discovery available in the litigation to further pursue the facts and determine whether to seek the court's permission to bring additional charges in this case."

In August, the SEC accused Bank of America of concealing from investors the plans to pay billions of dollars in bonuses to employees of Merrill Lynch, the troubled Wall Street firm it bought at the peak of the financial crisis. Bank of America agreed to settle, without admitting or denying charges.

But Judge Jed S. Rakoff of the Southern District of New York rejected the settlement, saying it suited the immediate interests of the SEC and Bank of America, but neither the public interest nor that of Bank of America's shareholders.

He called the settlement a "contrivance" that allowed the SEC to appear to be an aggressive regulator and that allowed Bank of America executives to skirt charges while shareholders paid the penalty.

Rakoff ordered the case to trial in February.

As required, the SEC and Bank of America filed a plan to try the case with the judge. That doesn't necessarily mean a trial will occur. Even as it prepares, the agency could still appeal Rakoff's order to the U.S. Court of Appeals for the 2nd Circuit. The SEC on Monday left this option open.

It is rare for a judge to interfere with a settlement between the SEC and a company.

New York Attorney General Andrew M. Cuomo and congressional investigators are also probing the Bank of America-Merrill Lynch deal. Sources familiar with Cuomo's investigation have said he is drawing up charges against top Bank of America executives.

Bank of America has maintained that it did nothing wrong in its disclosures, a position it repeated on Monday. "We intend to vigorously defend ourselves in court," a spokesman for the bank said.

The SEC's statement suggested that the agency thinks it will have more legal tools in coming months to investigate Bank of America than it did during its original probe.

Rakoff sharply criticized the agency for not bringing action against Bank of America executives or lawyers the SEC relied on for advice in determining what to tell investors.

The SEC has said Bank of America declined to waive its attorney-client privilege and, as a result, the agency could not learn what was discussed between Bank of America executives and their lawyers.

But the agency has said a judicial proceeding, unlike an investigation, can require companies to waive the privilege.

As a result, the upcoming trial may require Bank of America to disclose what was said between lawyers and executives in the course of preparing for the Merrill Lynch acquisition.

Separately, Reuters reported, Bank of America failed to meet a Monday deadline to give congressional investigators further details about its acquisition of Merrill Lynch, said a spokeswoman for the House Oversight and Government Reform Committee, which is investigating details surrounding the deal. According to the news service, a Bank of America spokesman said that it is working with the panel's chairman, Rep. Edolphus Towns (D-N.Y.), and that an executive will meet with Towns today to discuss providing the necessary documents "without violating attorney-client privilege."


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