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Date Posted: 06:45:55 03/11/04 Thu
SEC fines BofA $10 million
Penalty is largest for failure to produce documents; bank investigated for stock trades
RICK ROTHACKER
Staff Writer
The Securities and Exchange Commission levied a record $10 million fine against Charlotte-based Bank of America Corp. Wednesday for failing to comply with records requests during a stock-trading probe.
The SEC said it took the unusual step of meting out the penalty in the midst of an investigation to send a message that companies must turn over e-mails and other documents when demanded. Officials said it was the largest settlement for a failure to produce documents.
The penalty stems from an ongoing probe into whether Banc of America Securities LLC, the unit that includes stock and bond trading, engaged in improper trading prior to the release of its stock analyst reports.
The SEC said Banc of America Securities repeatedly failed to quickly produce requested documents, provided misinformation about the availability of documents and engaged in other delay tactics. The company neither admitted nor denied wrongdoing in the settlement.
The action is the latest black eye for Bank of America, which has been snared in probes of improper mutual fund trading and of troubled Italian food maker Parmalat Finanziaria SpA.
The nation's No. 3 bank in assets could reach a settlement with New York Attorney General Eliot Spitzer over mutual fund allegations as early as next week, a source familiar with the matter said Wednesday. Spitzer could seek a penalty of as much as $250 million, matching the biggest fine doled out in the mutual fund probe, sources have said.
Bank of America had disclosed in January the investigation that led to Wednesday's settlement.
"The company believes the problems addressed by the SEC in this settlement are isolated, and we continue to look for ways to improve our ability to respond to inquiries such as this," company spokeswoman Shirley Norton said.
She said the company had taken a number of steps to improve its ability to respond to regulatory inquiries, including creating a special internal investigation unit, improving e-mail-recovery technology and changing its outside legal counsel involved in the inquiry.
In addition to the $10 million penalty to be paid to the U.S. Treasury, Banc of America Securities also agreed to be censured in the settlement.
"Today's action makes clear that we will not tolerate unreasonable delay in responding to our inquiries and will act aggressively to protect the integrity of the commission's investigative processes," said Stephen Cutler, director of the SEC's enforcement division in a statement.
The investigation began in the summer of 2001 when the SEC received a letter from an anonymous tipster. The informant alleged that senior managers in Banc of America Securities' equities department may have caused the firm to buy and sell securities before stock upgrades and downgrades, according to the settlement document. The bank said in a securities filing last week that the SEC is looking at activity between 1999 and 2001.
As part of its probe, the SEC requested three years' worth of e-mails from seven managers. Banc of America Securities missed deadlines, failed to request extensions and did not promptly disclose that documents had been destroyed, according to the settlement. Ultimately, e-mail requests made in 2001 and 2002 weren't completed until the fall of 2003, the settlement states.
In one instance, the firm responded to the SEC that it had not intentionally withheld documents, blaming technical glitches and faulty back-up tapes, according to the settlement. But the settlement noted that Banc of America Securities failed to disclose to the SEC that it had retrieved copies of some e-mails a year earlier.
In another instance, the SEC requested information and documents in November 2002. A week later, several boxes of documents stored by a third-party vendor were destroyed by the vendor, according to the settlement. While investigating the loss of documents, Banc of America Securities asked for an extension but did not disclose that the documents had been destroyed, the SEC stated. The documents were destroyed inadvertently, the company told the SEC.
The SEC is also investigating personal trading activities of Banc of America Securities' former director of marketing, whose name was not disclosed in the settlement.
Ron Geffner, a former SEC enforcement official and partner in New York law firm Sadis & Goldberg, said the $10 million penalty wasn't much money for a company that made $10.8 billion in profits in 2003. But he said it was an example of the SEC flexing its muscle. "We have moved into a more conservative era in that regulators realize they are under greater scrutiny to police the capital markets," he said.
Analyst research was the subject of a state and federal investigation that resulted in a $1.4 billion settlement last year with 10 major Wall Street firms. Regulators accused analysts of issuing biased reports to woo investment banking business.
Bank of America was not part of that pact, but in December one of its former analysts, Andrew Hamerling, was fined by the National Association of Securities Dealers for issuing reports contrary to his personal opinions.
In that case, the NASD found that Hamerling did not issue a negative research report about SBC Communications Inc. because he was concerned the telecommunications firm would deny him future information. The case was settled with Hamerling neither admitting nor denying the allegations.
The latest settlement comes as Bank of America is nearing completion of its acquisition of FleetBoston Financial Corp., a deal initially valued at $47 billion. The banks hope to make the merger official next month, following shareholder meetings in Charlotte and Boston on Wednesday. The Federal Reserve Board gave its blessing earlier this week.
On a day in which the S&P 500 Index fell about 1.5 percent, Bank of America shares fell more than 2 percent, or $1.78, to $79.99 in trading Wednesday.
In a research report, Hoefer & Arnett analyst Dick Bove said investors were concerned about the company's legal woes.
"The reputation that management built over the last few years is shot," wrote Bove, who does not own Bank of America stock or do other business with the company. "Investors are discouraged by just about everything they hear about the company."
Just last week, Bank of America said three employees in its Milan, Italy, office -- two of whom resigned -- were being investigated as part of Italian authorities' probe of Parmalat, the dairy company which has filed for bankruptcy protection. Another former employee was already under investigation.
And last month, state and federal regulators accused Boston-based Fleet of its own mutual fund imbroglio. Spitzer and the SEC sued the mutual fund units of the company, alleging $2.5 billion in improper mutual fund trades over five years.
Still, Bove said selling off shares of Bank of America was a mistake because of its immense earnings power. With its Fleet merger, the only coast-to-coast bank will increase its position as the nation's largest consumer bank, holding nearly $1 of every $10 in U.S. bank deposits, and enter wealthy markets in the Northeast.
Bove cited the hammering Citigroup Inc.'s stock took two years ago during investigations of its relationship with Enron Corp. and analyst research. Citigroup shares have doubled since that low, he pointed out.
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SEC fines BofA $10 million