Tuesday 14 April 2009
by: Sarah O'Connor and Greg Farrell | Visit article original @ The Financial Times
Rep. Darrell E. Issa (R-California) (Left) and Rep. Elijah E. Cummings (D-Maryland) (Right) listen while subcommittee chairman Rep. Dennis J. Kucinich (D-Ohio) (Center) speaks. Kucinch wrote the S.E.C. and requested an investigation of Bank of America. (Photo: Getty Images)
Washington and New York - The Securities and Exchange Commission is reviewing whether Bank of America broke the law by not telling shareholders about Merrill Lynch's plan to pay out $3.6bn in bonuses before they voted for a government-backed merger of the two banks.
Merrill paid the bonuses in December, days before it was acquired by BofA and a month before bonuses were normally dispensed.
BofA has said it was not required to tell its shareholders about the bonuses.
But Mary Schapiro, chairman of the SEC, wrote in a letter to a Democratic congressman that the regulator was "carefully reviewing the Bank of America disclosure" and had not yet expressed a view on whether the bonus plan should have been revealed.
Federal securities law prohibits institutions from "omitting material facts" in connection to the purchase or sale of securities.
The incident has stirred controversy because Merrill was racking up record losses of $27.5bn for the year when it paid the bonuses, and Ken Lewis, BofA chief executive, eventually asked for $20bn in taxpayers' money to complete the takeover.
The pay-out, revealed by the Financial Times this year, has prompted an investigation by Dennis Kucinich, chairman of an investigative House sub-committee, shareholder lawsuits and an investigation by Andrew Cuomo, New York's attorney-general.
Mr Kucinich wrote to the SEC last week to ask whether BofA should have told its shareholders about the bonuses. He has also demanded that the Treasury and Federal Reserve reveal what they knew about the plan, given their close involvement in the merger discussions.
In response to Mr Kucinich, Ms Schapiro wrote: "Where the SEC believes that there has been an omission of material facts necessary in order to make the statements not misleading, we will carry out our enforcement responsibilities with vigour and vigilance."
If the SEC decided that BofA was derelict in not informing its shareholders of the bonuses before they voted for the takeover on December 5, the bank would be exposed to civil penalties.
It would also add fuel to Mr Cuomo's investigation, which has expanded beyond the bonuses and into the question of whether BofA treated its shareholders fairly.
BofA declined to comment.
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