U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21164 / August 3, 2009
SEC v. Bank of America Corp., Case No. 09 civ 6829 (S.D.N.Y. Filed August 3, 2009)
SEC Charges Bank of America for Failing to Disclose Merrill Lynch Bonus Payments
The Securities and Exchange Commission today charged Bank of America Corporation for misleading investors about billions of dollars in bonuses that were being paid to Merrill Lynch & Co. executives at the time of its $50 billion acquisition of the firm. Bank of America agreed to settle the SEC's charges and pay a penalty of $33 million.
The SEC alleges that in proxy materials soliciting the votes of shareholders on the proposed acquisition of Merrill, Bank of America stated that Merrill had agreed that it would not pay year-end performance bonuses or other discretionary compensation to its executives prior to the closing of the merger without Bank of America's consent. 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. According to the SEC's complaint, the disclosures in the proxy statement were rendered materially false and misleading by the existence of the prior undisclosed agreement allowing Merrill to pay billions of dollars in bonuses for 2008.
The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Bank of America represented in the merger agreement that Merrill had agreed not to pay any bonuses to its executives before the merger closed, except as set forth in a schedule. Unbeknownst to shareholders, the schedule was already in place weeks before the proxy statement was filed with the SEC and disseminated to shareholders. Under the schedule, Bank of America had agreed that Merrill could pay up to $5.8 billion, or nearly 12 percent of the $50 billion merger consideration, in discretionary bonuses to its executives. The merger agreement was included as an appendix and summarized in the joint proxy statement that was distributed to all 283,000 shareholders of both companies. But Bank of America's agreement to allow Merrill to pay these discretionary bonuses was in a separate document that was omitted from the proxy statement and whose contents were never disclosed before the shareholders' vote on the merger.
In settling the SEC's charges without admitting or denying the allegations, Bank of America consented to the entry of a judgment that permanently enjoins Bank of America from violating the proxy solicitation rules — Section 14(a) of the Exchange Act of 1934 and Rule 14a-9 — and orders Bank of America to pay the financial penalty. The settlement is subject to court approval.
The SEC acknowledges the assistance of the U.S. Attorney's Offices for the Southern District of New York and the Western District of North Carolina, the Federal Bureau of Investigations, and the Office of the Special Inspector General for the Troubled Asset Relief Program. The SEC's investigation is ongoing.