SEC Sues Banс of America for Securities Fraud

Jack Humphrey, Regulatory journalist
December 08, 2010 /

Allegedly rigging the bidding process for municipal securities, supported by captured hidden agreements and kickbacks to bidding agents, the Bank of America Corp.’s Banc of America Securities, (BAS) LLC, now called Merrill Lynch, Pierce, Fenner & Smith Incorporated by virtue of a merger, is charged with securities fraud by the Securities and Exchange Commission (SEC) on December 7 for violating IRS regulations of fair market value.

The SEC argued in its order that the anomalous municipal securities bidding resulted in the jeopardy of the tax-exempt status of the municipal securities worth billions of dollars, the process being allegedly not competitive as it was marked with “undisclosed consultations or payments.”

The order also accused the bidding agents of taking part in the securities fraud through manipulation of the process and getting paid by BAS in return for allegedly steering the business towards the company from the municipalities by providing it with information on the last look of the ongoing bids, and deliberately helping BAS to win the bidding process through off-market setup. It gave BAS the sole rights to the 88 reinvestment products including guaranteed contracts (GICs), repurchase agreements (Repos), and forward purchase agreements (FPAs).

SEC’s Division of Enforcement director Robert Khuzami commended the action against the securities fraud to be of help to the efforts of SEC of dismantling corruption in the municipal reinvestment industry. He lamented that BAS pretended to have won the bid by following the proper process.

BAS will pay a total of $36,096,442 in disgorgement and prejudgment interest to SEC and another $101 million to the other authorities of the federal state in compensation for the securities fraud.


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