SEC Reaches $137M Settlement with Bank of America Subsidiary in Municipal Bond Investigation

WASHINGTON, D.C. - (Mealey's) A former subsidiary of Bank of America Corp. that is now part of Merrill Lynch, Pierce, Fenner and Smith LLP agreed on Dec. 7 to a $137 million settlement of a Securities and Exchange Commission investigation into allegations of bid rigging during the investment of proceeds of municipal bonds (In the Matter of Banc of America Securities LLC, File No. 3-14153, SEC).

According to a press release, which can be found on the SEC's website at http://www.sec.gov/news/press/2010/2010-239.htm, Banc of America Securities LLC has agreed to pay more than $36 million in disgorgement and interest, as well as $101 million "to other federal and state authorities for its conduct."

The settlement comes on the heels of a cease-and-desist order also issued yesterday by the SEC, where the SEC found that "the bidding process was not competitive because it was tainted by undisclosed consultations, agreements, or payments and, therefore, could not be used to establish the fair market value of the reinvestment instruments.  As a result, these improper bidding practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities, the principal amounts of which totaled billions of dollars."

Banc of America Securities, without admitting or denying guilt with regard to the SEC's findings, agreed to censure, requiring Banc of America Securities to cease and desist from "committing or causing any violations and any future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934."  It also must pay disgorgement and prejudgment interest in the amount of $36,096,442 "directly to the affected entities."

The SEC said it began investigating Banc of America Securities' role "in certain improper bidding practices that occurred, from at least 1998 through 2002, involving the temporary investment of proceeds of tax-exempt municipal securities in reinvestment products, such as guaranteed investment contracts, repurchase agreements, and forward purchase agreements."

"[T]hese practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities," the SEC said.

Moreover, according to the SEC's press release, the SEC barred former Banc of America Securities officer Douglas Lee Campbell from "association with any broker, dealer or investment adviser, based upon his guilty plea to a criminal information on Sept. 9, 2010, in United States v. Douglas Lee Campbell (Criminal Action No. 10-cr-803) charging him with two counts of conspiracy and one count of wire fraud."

Campbell was charged with engaging in "fraudulent misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds."  No civil penalty was imposed by the SEC against Campbell.

[Editor's Note:  Full coverage will be in the January issue.  In the meantime, the SEC's order against Banc of America Securities is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #57-110111-010R.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Timothy J. Raub at 215-988-7740, or e-mail him at timothy.raub@lexisnexis.com.