Bank of America Corp. (BAC) will pay a $7.75 million penalty to settle U.S. Securities and Exchange Commission charges alleging violations of civil securities laws involving record keeping and internal controls. The case is over the $4 billion capital error that the bank disclosed earlier in the year.
In April, Bank of America said that it had been miscalculating certain capital levels since 2009. By the end of last year the error was over $4.3 billion. The violations took place after the firm took on a huge portfolio that included structured notes when it acquired Merrill Lynch.
The SEC says that when Bank of America acquired Merrill Lynch it permissibly recorded the notes it inherited at a discount to par. Bank of America then should have realized losses on the notes while they matured and deducted them for purposes of figuring out and reporting regulatory capital.
The regulator says that by the time 90% of the notes had matured as of March of this year, the bank still hadn’t subtracted the realized losses from its regulatory capital.
Bank of America was the one that discovered the mistake and notified regulators. Because of the error it had to resubmit stress-test plans to the Federal Reserve.
Aside from the penalty, Bank of America must cease and desist from causing or committing violations of specific sections of the Securities Exchange Act of 1934.
SEC Charges Bank of America With Securities Laws Violations in Connection With Regulatory Capital Overstatements, SEC.gov, September 29, 2014
The SEC Order (PDF)
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