Bank of America settled with the SEC and state regulators today over allegations of fraud in connection with the sale of auction-rate securities, agreeing to buy them back from its retail customers at par. The agreement closely mirrors the firm’s earlier settlement with the Massachusetts Securities Division that was announced on September 10, 2008. Bank of America neither admitted nor denied guilt, and continues to cooperate fully with the SEC's ongoing investigation.
Registered Rep. wrote about the earlier settlement here, and first covered the ARS market freeze and its consequences for brokers and retail clients in a May cover story.
Other firms, including Bear Stearns, Citigroup, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, RBC Dain Rauscher, A.G. Edwards, Morgan Keegan, Piper Jaffray, SunTrust and Wachovia, have agreed to ARS settlements. Meanwhile, some brokers have also been charged with fraud related to the sale of ARS.
According to the press release, the terms of Bank of America’s agreement in principle with the SEC, NYAG and NASAA include the following:
• The offer to purchase applies to individual investors and trusts for the benefit of individuals who purchased auction-rate securities before February 13, 2008. It also applies to businesses with account values up to $15 million and charities with account values up to $25 million. It does not apply to auction-rate securities where auctions are clearing.
• Bank of America will compensate eligible customers who purchased ARS through the company prior to February 11, 2008, and sold such securities at a loss between that date and October 8, 2008.
• To the extent that eligible customers believe they have a claim for consequential damages beyond the loss of liquidity in the individual customer's holdings of ARS, Bank of America will participate in a special arbitration process. The special arbitration process is available at the customer's election and will be overseen by FINRA with Bank of America paying FINRA's forum and filing fees.
• Bank of America's repurchase program will remain open until December 1, 2009.
• The company will operate telephone assistance lines to answer questions and to assist eligible customers who wish to accept the offer. Customers can call (866) 638-4183 or visit http://www.bankofamerica.com/ and select "investment services" for information.
• Bank of America will work with issuers and other interested parties, including regulatory authorities and industry participants, to provide liquidity solutions for institutional customers.
• Bank of America will pay a $50-million penalty. The company neither admits nor denies allegations of wrongdoing.
