The Securities and Exchange Commission said Monday it will go to trial against Bank of America Corp. over bonuses at Merrill Lynch, opening the possibility of also bringing charges against bank executives, a week after a judge's stinging rejection of a $33 million settlement of the case.
The news comes as Bank of America executive Anne Finucane prepares to meet Tuesday with Rep. Edolphus Towns, D-N.Y., about BofA's takeover of the troubled investment bank. BofA missed a Monday deadline to turn over details of the hastily arranged acquisition to a congressional committee.
The SEC said it will "vigorously pursue" its case against Bank of America, which acquired Merrill in a hastily arranged deal a year ago. The agency had accused the bank, one of the biggest U.S. financial institutions, of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses.
The SEC has been weighing its options since U.S. District Judge Jed Rakoff called the proposed settlement a breach of "justice and morality" and ordered the case to trial. Another route would have been to try to renegotiate the accord with Bank of America.
"We firmly believe that the settlement we submitted to the court was reasonable, appropriate and in the public interest," the SEC said in a statement issued Monday night. The agency had made that argument in briefs filed in recent weeks to Rakoff. Bank of America also had defended the settlement as appropriate.
Rakoff had questioned why individual executives at Charlotte, North Carolina-based Bank of America weren't charged by the SEC. His unprecedented rejection of the settlement put the SEC in a touchy legal situation. The agency on Monday notified the federal court in Manhattan, where Rakoff issued his ruling a week earlier, that it had decided to proceed to trial in the case.
The SEC said it could seek to bring additional charges if supported by the record of evidence that develops in the trial, meaning that it could seek to charge individual executives.
"As we consider our legal options with respect to the court's ruling, we will vigorously pursue our charges against Bank of America and take steps to prove our case in court," the SEC statement said. "We will use the additional discovery available in the litigation to further pursue the facts and determine whether to seek the court's permission to bring additional charges in this case. In deciding how to proceed we will, as always, be guided by what the facts warrant and the law permits."
Bank of America spokesman Scott Silvestri had no immediate comment.
Bank of America agreed to pay the $33 million in the settlement without admitting or denying wrongdoing. The bank has said it didn't violate disclosure rules but wished to avoid litigation with the SEC at a time of market uncertainty.
Rakoff, in his ruling, found that the settlement "suggests a rather cynical relationship between the parties."
"The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth," he wrote.
Separately Monday, Bank of America agreed to pay $425 million to government agencies, including the Treasury Department, to exit an arrangement under which public funds might have been used to shoulder losses on $118 billion worth of risky assets from the Merrill Lynch takeover. The option was never used, but the government has argued that the bank benefited from the promise of protection.
The move is part of a broader effort by the bank to reduce its reliance on various forms of government support. Charlotte, N.C.-based BofA has been one of the largest benefactors of the government's financial rescue program, receiving a total of $45 billion from the taxpayer-financed $700 billion financial bailout program.