U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21780 / December 15, 2010
Securities and Exchange Commission v. Banc of America Securities LLC and Banc of America Investment Services, Inc., Civil Action No. 08 CIV 5170 (S.D.N.Y.)
SEC Completes Review of Performance by Bank of America Under Auction Rate Securities Settlements
The Securities and Exchange Commission today announced that Bank of America (BOA), which previously settled the Commission's auction rate securities (ARS) charges against it, has satisfied its obligations under its settlement and that BOA has returned more than $6.7 billion to its ARS customers.
Under the settlement, BOA was required to offer to purchase ARS at par from its individual, charitable, and small business customers. Nearly 100% of these customers accepted BOA’s offer resulting in approximately $4.7 billion of liquidity.
The settlement also required BOA to use “best efforts” to provide liquidity to its institutional customers. From February 2008, when the ARS market failed, through October 2010, the ARS holdings of BOA’s institutional customers were reduced by $2 billion or 56.4% (from $3.68 billion to $1.6 billion), primarily through settlements with individual customers and issuer redemptions. In further compliance with its “best efforts” obligation, in November 2010, BOA launched a program offering favorable loans or buybacks to all its remaining institutional investors, including legacy customers of Merrill Lynch.
BOA also met its other settlement obligations, including compensating investors who sold ARS below par, reimbursing investors for excess interest costs associated with loans taken out due to ARS illiquidity, and participating in a special arbitration proceeding before the Financial Industry Regulatory Authority.
Under the settlement, the Commission retained the right to seek a civil penalty if BOA did not meet its obligations. Because the Commission has determined that BOA has met its settlement obligations, it will not seek a penalty.
Pursuant to a preliminary settlement in principle with the SEC’s Division of Enforcement announced on August 22, 2008, BOA’s subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), has returned $7.9 billion to its ARS customers. Separately, under its preliminary settlement, Merrill Lynch was required to offer to purchase ARS at par from its individual, charitable, and small business customers. Nearly 100% of these customers accepted Merrill Lynch’s offer, resulting in approximately $7 billion of liquidity. From February 2008 through October 2010, the ARS holdings of Merrill Lynch’s institutional customers were reduced by $976 million or 76.9% (from $1.27 billion to $294 million). Merrill Lynch’s satisfaction of its obligation under the preliminary settlement to use “best efforts” to provide liquidity to its institutional customers remains under review.
The Commission’s several ARS settlements followed the Commission’s investigation into the ARS market collapse of February 2008 that left tens of thousands of investors holding ARS they could not sell. A major focus of the Commission’s several ARS settlements, including with Citigroup, UBS, RBC, Deutsche Bank, and Wachovia, as well as with BOA, was to return liquidity to investors as quickly as possible, particularly to individuals, charities, and small businesses. More than $67 billion has been returned to the ARS customers of the settling firms.
The Commission notes the assistance and cooperation of the Office of the New York Attorney General, the Massachusetts Secretary of State, the Financial Industry Regulatory Authority, and the North American Securities Administrators Association.
Litigation Release No. 21066 (SEC v. Banc of America Securities, LLC and Banc of America Investment Services, Inc.)
Press Release No. 2008-181 (SEC Enforcement Division Announces Preliminary Settlement with Merrill Lynch to Help Auction Rate Investors)