Here Is the SEC Statement on BofA’s Settlement of the Merrill Bonus Case
By Stephen Grocer
The saga of the bonuses Merrill Lynch paid to its employees in December, it seems, has come to a conclusion–at least where the SEC is concerned.
The regulator filed and simultaneously settled civil fraud charges against BofA over the bank’s alleged failure to disclose to investors that it
agreed to pay $5 billion in bonuses at the time of its takeover of Merrill Lynch. The SEC said the Charlotte, N.C., bank agreed to pay $33 million to
settle the suit, which was filed in federal court in Manhattan.
Below is SEC’s news release announcing the charges and the settlement:
* * *
FOR IMMEDIATE RELEASE
SEC CHARGES BANK OF AMERICA FOR FAILING TO DISCLOSE MERRILL LYNCH BONUS PAYMENTS
Washington, D.C., Aug. 3, 2009 – The Securities and Exchange Commission today charged Bank of America Corporation for misleading investors about
billions of dollars in bonuses that were being paid to Merrill Lynch & Co. executives at the time of its acquisition of the firm. Bank of America
agreed to settle the SEC’s charges and pay a penalty of $33 million.
The SEC alleges that in proxy materials soliciting the votes of shareholders on the proposed acquisition of Merrill, Bank of America stated that
Merrill had agreed that it would not pay year-end performance bonuses or other discretionary compensation to its executives prior to the closing of
the merger without Bank of America’s consent. In fact, Bank of America had already contractually authorized Merrill to pay up to $5.8 billion in
discretionary bonuses to Merrill executives for 2008. According to the SEC’s complaint, the disclosures in the proxy statement were rendered
materially false and misleading by the existence of the prior undisclosed agreement allowing Merrill to pay billions of dollars in bonuses for
“Companies must give shareholders all material information about corporate transactions they are asked to approve,” said Robert Khuzami, Director
of the SEC’s Division of Enforcement. “Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses
obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement.”
David Rosenfeld, Associate Director of the SEC’s New York Regional Office, said, “As Merrill was on the brink of bankruptcy and posting record
losses, Bank of America agreed to allow Merrill to pay its executives billions of dollars in bonuses. Shareholders were not told about this agreement
at the time they voted on the merger.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Bank of America represented in the merger
agreement that Merrill had agreed not to pay any bonuses to its executives before the merger closed, except as set forth in a schedule. Unbeknownst to
shareholders, the schedule was already in place weeks before the proxy statement was filed with the SEC and disseminated to shareholders. Under the
schedule, Bank of America had agreed that Merrill could pay up to $5.8 billion, or nearly 12 percent of the $50 billion merger consideration, in
discretionary bonuses to its executives. The merger agreement was included as an appendix and summarized in the joint proxy statement that was
distributed to all 283,000 shareholders of both companies. But Bank of America’s agreement to allow Merrill to pay these discretionary bonuses was
in a separate document that was omitted from the proxy statement and whose contents were never disclosed before the shareholders’ vote on the
In settling the SEC’s charges without admitting or denying the allegations, Bank of America consented to the entry of a judgment that permanently
enjoins Bank of America from violating the proxy solicitation rules – Section 14(a) of the Exchange Act of 1934 and Rule 14a-9 – and orders Bank
of America to pay the financial penalty. The settlement is subject to court approval.
The SEC acknowledges the assistance of the U.S. Attorney’s Offices for the Southern District of New York and the Western District of North Carolina,
the Federal Bureau of Investigations, and the Office of the Special Inspector General for the Troubled Asset Relief Program.
The SEC’s investigation is ongoing.
And another blog I found well written: