Bank of America misled its shareholders over $3.6bn (£2.1bn) in bonuses paid to employees of Merrill Lynch, the US investment bank it acquired last year, according to a lawsuit filed by regulators.
The Securities and Exchange Commission accused BofA and its directors of making "materially false and misleading statements" when it asked investors to approve the acquisition of Merrill in December.
Last night, BofA said it had immediately agreed to settle the charges, without admitting or denying wrongdoing. It will pay a $33m fine.
In its proxy statement ahead of a shareholder vote on the Merrill deal, BofA said it had agreed that Merrill would not pay bonuses for 2008 until after the new owners took charge, but in fact no such agreement existed.
In a secret memo drawn up at the end of the fraught weekend of talks last September, as Lehman Brothers collapsed and Merrill's future hung in the balance, Merrill was authorised to pay up to $5.8bn in bonuses. In the end, Merrill distributed $3.6bn in its dying days as an independent company, a fact that infuriated the BofA chief executive Ken Lewis so much that he fired Merrill boss John Thain within weeks of taking over the company on 1 January.
David Rosenfeld, an associate director at the SEC's New York office, said: "As Merrill was on the brink of bankruptcy and posting record losses, Bank of America agreed to allow Merrill to pay its executives billions of dollars in bonuses. Shareholders were not told about this agreement at the time they voted on the merger."
Merrill's spiralling losses forced BofA to take $45bn in US government bailout money, putting it in the crosshairs of politicians and complicating its ability to retain or hire staff for the enlarged investment banking operations.
There has been controversy over the size of pay packages handed to senior bankers that Merrill has poached from rivals in recent months. However, the hiring spree continued yesterday with news that it has appointed Sallie Krawcheck, a former finance director of Citigroup and one of the most powerful women on Wall Street, to a new post.
The opportunistic acquisition of Merrill Lynch sealed Mr Lewis's long-held ambition to turn BofA into a major force in investment banking, but shareholders furious about the government bailout have launched lawsuits claiming the deal was reckless and that they should have been informed of Merrill's deteriorating financial position before they voted in December. Shareholders voted to strip Mr Lewis of the title of chairman earlier this year.Reuse content