NEW YORK (Mealey’s) — The Securities and Exchange Commission moved for court approval of a proposed settlement of two separate actions against Bank of America Corp. (BoA) yesterday, seeking to settle claims that BoA misrepresented that it would pay discretionary year-end compensation bonuses to Merrill Lynch and Co. executives as part of a merger deal to acquire Merrill Lynch, in violation of federal securities laws (Securities and Exchange Commission v. Bank of America Corp., Nos. 09-6829 and 10-0215, S.D. N.Y.; See January 2010, Page 7).
According to an SEC press release announcing the settlement proposal, BoA has agreed to pay $150 million to BoA shareholders that were harmed by BoA’s alleged misrepresentations and omissions. It will also undertake a series of remedial actions over a three-year period, including:
“Retain an independent auditor to perform an audit of the Bank’s internal disclosure controls, similar to an audit of financial reporting controls currently required by the federal securities laws.”
“Have its Chief Executive and Chief Financial Officer certify that they have reviewed all annual and merger proxy statements.”
“Retain disclosure counsel who will report to, and advise, the Board’s Audit Committee on the Bank’s disclosures, including current and periodic filings and proxy statements.”
“Adopt a ‘super-independence’ standard for all members of the Board’s Compensation Committee that prohibits them from accepting other compensation from the Bank.”
“Maintain a consultant to the Compensation Committee that would also meet super-independent criteria.”
“Provide shareholders with an annual non-binding ‘say on pay’ with respect to executive compensation.”
“Implement and maintain incentive compensation principles and procedures and prominently publish them on Bank of America’s Web site.”
The SEC filed its initial complaint (SEC v. Bank of America, No. 09-6829, S.D. N.Y.) on Aug. 3 in the U.S. District Court for the Southern District of New York. It alleged that the company violated Section 14(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9 by issuing a series of misrepresentations regarding the issuance of the year-end compensation.
Judge Jed S. Rakoff denied a proposed judgment between the parties that had been filed the same day as the complaint. Under the terms of the proposed judgment, BoA, which denied any wrongdoing, would have paid a $33 million penalty to the SEC and would have been enjoined from issuing any future false and misleading statements.
Then, after Judge Rakoff denied the SEC’s motion for leave to amend its complaint in a Jan. 11 bench order, the SEC filed a separate complaint against BoA in the District Court (Securities and Exchange Commission v. Bank of America Corp., No. 10-0215, S.D. N.Y.), adding another claim under Section 14(a) and Rule 14a-9. The SEC alleged that BoA concealed information in proxy statements that Merrill Lynch suffered multibillion dollar losses in the months leading up to BoA’s shareholder vote on the merger deal.
In a related action, New York Attorney General Andrew Cuomo filed a lawsuit against BoA, Chief Executive Officer Kenneth D. Lewis and Chief Financial Officer Joseph L. Price in the New York County Supreme Court yesterday. He alleges that the defendants violated New York Executive Law Sections 63(1) and 63(12) and New York’s General Business Law Sections 352, et seq., the Martin Act, by misleading BoA shareholders with regard to the Merrill losses prior to the merger vote.