Bank of America Corp. agreed to pay $26 million to settle regulatory charges that it issued false equity research, and let its own traders misuse analyst reports to generate improper profits.
The second-largest U.S. bank agreed to $16 million of civil fines and $10 million of disgorgement, the U.S. Securities and Exchange Commission said. It will also hire a consultant to review internal controls and stop leaks of research reports.
According to the SEC, improper activities took place at the company's Banc of America Securities LLC unit from January 1999 to December 2001. It said sales staff and traders learned about research reports before they were published, and traders generated improper profits at least twice as a result.
"We are determined to plug the improper leak of information on Wall Street," said Linda Thomson, director of the SEC's enforcement division, in a statement Wednesday.
The agency said Bank of America also failed to address analyst conflicts of interest, leading to false and misleading research on Intel Corp., E-Stamp Corp. and TelCom Semiconductor Inc.
In March 2004, Charlotte, North Carolina-based Bank of America agreed to pay $10 million for failing to produce records related to the probe. That penalty was the SEC's largest against a company for failing to produce documents.
"We believe it is in the best interest of the corporation and our shareholders to settle," spokeswoman Shirley Norton said. The bank did not admit wrongdoing. It said the probe related mainly to activities in its San Francisco office.
According to the SEC, traders profited in January 2000 from buying PLX Technology Inc. shares after learning of a pending upgrade. It said they also profited in June 2001 from selling semiconductor maker Cree Inc. shares "short," a bet on a decline, after learning of a forthcoming downgrade.
In the Intel case, the SEC said a banker's complaints helped cause an analyst in Sept. 2000 to upgrade Intel and Advanced Micro Devices Inc. to "buy," six days after he downgraded both to "market perform" from "strong buy."
The banker said the initial downgrade might harm a planned stock offering by Elantec Semiconductor Inc., a bank client. "A downgrade to buy would at least have given us some wiggle room," the banker said, according to the SEC.
Following the upgrade, Elantec conducted its offering, netting the bank more than $1.3 million of fees, the SEC said.
Banc of America Securities, like most major rivals, has split banking and research operations to help prevent conflicts.