The Securities and Exchange Commission announced a settlement agreement in principle with Bank of America of securities fraud charges arising from arrangements to permit timing in certain Nations Funds mutual funds and for facilitating market timing and late trading by certain customers. The agreement in principle is subject to the approval by the Commission.
Bank of America has agreed to pay a total of $375 million, consisting of $250 million in disgorgement and $125 million in penalties. The money will be distributed to the mutual funds and their shareholders that were harmed as a result of market timing in Nations Funds and other mutual funds through Bank of America.
Stephen M. Cutler, Director of the SEC Division of Enforcement, said: "The $375 million that Bank of America has agreed to pay and the significant reforms that it has agreed to implement reflect the seriousness of the misconduct in this matter. We will continue to investigate that misconduct in an effort to hold all responsible parties accountable."
Mark K. Schonfeld, Associate Director of the Northeast Regional Office, said: "This settlement is a new benchmark in mutual fund market timing and late trading. Bank of America not only permitted timing in its own funds, it provided the instruments for timing and late trading of numerous other funds through its broker-dealer. This settlement will ensure compensation for all victims of the harm that resulted and prevent this misconduct from happening again."
The misconduct occurred both at Bank of America's mutual fund advisory subsidiary, Banc of America Capital Management, LLC ("BACAP"), and its broker-dealer subsidiary, Banc of America Securities, LLC ("BAS"). BACAP permitted the Canary hedge fund to engage in market timing in its Nations Funds. BAS facilitated market timing and late trading by Canary and others by trading through a BAS broker, Theodore C. Sihpol and by trading directly through BAS's clearing function through an electronic link.
As part of the settlement, Bank of America will consent to a cease and desist order including securities fraud charges, without admitting or denying the Commission's findings. Bank of America has represented that it will also exit the securities clearing business by the end of the year. Bank of America has also agreed to implement certain election and retirement procedures for the Nations Funds trustees that will result in the replacement of the Nations Funds trustees within one year. Bank of America has also agreed to certain undertakings that will strengthen the mutual funds' and broker-dealers' oversight of compliance with the securities laws.
A final settlement will be subject to final documentation and, as noted above, approval by the Commission.
The Commission's investigation is continuing.