Bank of America Shows That Wall Street Regulation Stinks From The Head Down

Department of Justice

Office of Public Affairs

FOR IMMEDIATE RELEASE

Tuesday, December 7, 2010

Bank of America Agrees to Pay $137.3 Million in Restitution to Federal and State Agencies as a Condition of the Justice Department's Antitrust Corporate Leniency Program

WASHINGTON - Bank of America entities have agreed to pay a total of $137.3 million in restitution to federal and state agencies for its participation in a conspiracy to rig bids in the municipal bond derivatives market and as a condition of its admission into the Department of Justice's Antitrust Corporate Leniency Program, the Department of Justice announced today.

Bank of America entered into agreements with the U.S. Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of Currency (OCC), and 20 State Attorneys General. The global resolution with these federal and state entities provides for payment of restitution to the IRS and to municipalities harmed by Bank of America's anticompetitive conduct in the municipal bond derivatives market. In a related matter, Bank of America entered into a written agreement with the Federal Reserve Board to address certain remedial measures.

According to agreements announced today, Bank of America employees engaged in illegal conduct, including bid rigging and other deceptive practices, in connection with the marketing and sale of tax-exempt municipal bond derivatives contracts. . .

Department of Justice

Office of Public Affairs

FOR IMMEDIATE RELEASE

Thursday, August 21, 2014

Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis

Attorney General Eric Holder and Associate Attorney General Tony West announced today that the Department of Justice has reached a $16.65 billion settlement with Bank of America Corporation - the largest civil settlement with a single entity in American history ­- to resolve federal and state claims against Bank of America and its former and current subsidiaries, including Countrywide Financial Corporation and Merrill Lynch. As part of this global resolution, the bank has agreed to pay a $5 billion penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) - the largest FIRREA penalty ever - and provide billions of dollars of relief to struggling homeowners, including funds that will help defray tax liability as a result of mortgage modification, forbearance or forgiveness. The settlement does not release individuals from civil charges, nor does it absolve Bank of America, its current or former subsidiaries and affiliates or any individuals from potential criminal prosecution.

 

"This historic resolution - the largest such settlement on record - goes far beyond ‘the cost of doing business,'" said Attorney General Holder. "Under the terms of this settlement, the bank has agreed to pay $7 billion in relief to struggling homeowners, borrowers and communities affected by the bank's conduct. This is appropriate given the size and scope of the wrongdoing at issue." . . .

READ full DOJ August 21, 2014 Press Release

Bank of America Corp. has agreed to pay $180 million to settle a lawsuit by private investors who accused the bank and others of manipulating foreign-exchange rates.

The bank's decision comes after rivals J.P. Morgan Chase & Co. and UBS AG had agreed to settle with the same investors. Other banks, including Citigroup Inc. and BarclaysPLC, are expected to settle soon, according to people familiar with the situation.

Regulators around the world have been examining whether banks improperly manipulated the forex rates, and half a dozen banks settled with U.S. and U.K. regulators in November. At the time, Bank of America paid $250 million to the Office of the Comptroller of the Currency, though its U.S. rivals Citigroup and J.P. Morgan paid more than $1 billion each in fines to various regulators. . .

The Securities and Exchange Commission is investigating whether Bank of America Corp. broke rules designed to safeguard client accounts, potentially putting retail-brokerage funds at risk in order to generate more profits, according to people familiar with the inquiry.

For at least three years, the bank used large, complex trades and loans to save tens of millions of dollars a year in funding costs and to free up billions of dollars in cash and securities for trading that Bank of America otherwise would have needed to keep off-limits, these people said.

Now, the SEC is investigating whether the bank's unusual strategy violated customer-protection rules and whether the bank misled regulators about what it was doing, these people said.

. . .

Known in industry circles as Rule 15c3-3, a reference to the section where it is tucked within the Securities Exchange Act of 1934, the policy requires banks and other financial firms that handle customer trades to calculate at least once a week their net liabilities to clients-in other words, how much more banks owe to clients, in the form of deposits and other funds, than they are owed from clients, in the form of assets such as loans.

The greater the overall-or net-amount that the banks owe their clients, the more money the banks need to set aside in reserve funds, known as "lockup" accounts, to pay their customers in an emergency. Funds in those lockup accounts must be segregated from other accounts, including the banks' own.

Having billions of dollars idling in lockup is expensive for banks, partly because the money generally can't be put to other profitable but potentially risky uses such as trading.

New York-based executives in Bank of America's Merrill Lynch brokerage arm devised an array of complex trades and loans to reduce the amount of money trapped in lockup, according to people familiar with the trades.

One variety of the strategy, launched around 2009, was called "leveraged conversion." A small team from Bank of America's equities desk recruited a handful of clients, including wealthy individuals, to put up token amounts of their own money-a few million dollars in some cases-and in exchange receive loans of nearly 100 times those amounts, the people said.

Then Bank of America would arrange large trades, with those customers taking the opposite side, in ways that satisfied other financing needs at the bank. For example, if the bank needed to hedge its exposure to a multibillion-dollar position in, say, Apple Inc.'s shares, perhaps because of a trade with another client, the bank might arrange for one of the leveraged-conversion customers to do a big Apple-centric trade using the loan the bank had provided.

One result of the trades was to drastically increase the amounts of money that customers owed to the bank, thereby reducing the net amount that the bank owed its clients. That, in turn, reduced how much Bank of America had to stash in the 15c3-3 lockup.

Another benefit: Bank of America was able to curtail its use of more expensive funding from alternate sources such as the debt markets or other parts of the bank. . .

• Bank of America
• DOJ
• SEC
• FINRA
• Antitrust
• Bid Rigging
• Municipal Bonds
• FOREX
• Mortgage
• BrokeAndBroker
• Bill Singer