A whistleblower has informed the SEC that Bank of America sold complex derivatives products to customers during the financial crisis without disclosing their substantial risks ? even misrepresenting the products as “extremely conservative,” according to a New York Post article by Kaja Whitehouse called “Informer: Bank of America hawked risky deals to customers.”
According to the whistleblower’s letter to SEC Chairman Mary Shapiro, reportedly obtained by the Post, the Bank of America brokerage unit was so dependent on sales of structured notes in a declining market that the firm established quotas and threatened to terminate financial advisors who failed to meet them or who disclosed the true risks associated with the products to investors.
The whistleblower in this case was apparently among those threatened with termination if his “underlings” failed to produce more revenue from sales of structured notes.
According to the article, a spokesman for Bank of America did not specifically deny the whistleblower’s allegations, but stated: “It is our policy to conduct our business in accordance with applicable laws and industry practices,” he said.
Structured notes are derivative-like contracts that are linked to the performance of a reference assets, such as stocks, bonds or other securities, usually for a specific period of time. Some notes claim to offer principal protection regardless of the performance of the reference asset. In the case of notes issued by companies that have gone belly up, like Lehman Brothers, the purported principal protection was an illusion.
While the SEC has not published regulations detailing how whistleblower benefits will be distributed, the SEC has said that whistleblowers who provide information to the SEC that leads to a recovery could receive substantial monetary benefits ? 10% to 30% of the recovery ? under the new Dodd-Frank financial reform laws. The SEC is receiving whistleblower tips now, and it pays to be first in the door, especially if one believes the firm may self-report and try to blame underlings..
Page Perry is an Atlanta-based law firm with an active practice in representing investors in disputes with firms in the financial services industry. The firm is currently involved in representing dozens of investors that lost money in so-called principal protected notes and other structured products. For further information, please contact www.pageperry.com.