The SEC has begun to probe Bank of America’s failure to disclose increasing losses at Merrill Lynch prior to its acquisition. This development was reported just two months before the SEC ‘s scheduled trial against Bank of America for its failure to disclose controversial bonuses paid to Merrill employees.
In September, Judge Jed Rakoff of the United States District Judge for the Southern District of New York rejected a settlement between the SEC and the bank. Instead, he ordered a trial on the bonus matter to be scheduled for February 1, 2010. The proposed agreement was comprised of a $33 million fine with Bank of America neither admitting nor denying the charges of lying to shareholders about the bonuses paid to Merrill employees. At the time, Rakoff noted that the settlement “does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the bank’s alleged misconduct now pay the penalty for that misconduct.”
In a recent congressional hearing, Rep. Dennis Kucinich (OH-10) asked SEC Enforcement Director Robert Khuzami if the agency had expanded the investigation into Bank of America’s failure to disclose losses at Merrill Lynch. Khuzami said, “yes,” indicating mounting problems for Bank of America.In a sign of the scope of the investigation, Khuzami further testified that the SEC has been and is “looking at all aspects” related to all of Bank of America’s disclosures to shareholders prior to the Merrill Lynch acquisition, including Merrill’s bonuses and losses incurred.