Bank of America to face SEC trial, exits loss-sharing deal

WASHINGTON -- Bank of America Corp. now faces a trial with the Securities and Exchange Commission over billions in bonuses paid at Merrill Lynch, after a judge threw out the bank's $33 million settlement and rebuked the agency for not pursuing charges against executives.

The news comes as Bank of America executive Anne Finucane prepares to meet Tuesday with Rep. Edolphus Towns, a New York Democrat, about BofA's takeover of the troubled investment bank. BofA missed a Monday deadline to turn over details of the hastily arranged acquisition to a congressional committee.

The SEC had accused BofA of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses to its employees in 2008 even though the investment bank lost $27.6 billion that year. BofA had agreed to pay $33 million to settle the charges without admitting or denying wrongdoing, saying it didn't violate disclosure rules but wanted to avoid litigation with the SEC at a time of market uncertainty.

But U.S. District Judge Jed Rakoff last week called the proposed settlement a breach of "justice and morality," and ordered a trial. He questioned why individual executives at Bank of America weren't charged, and said the settlement unfairly penalized shareholders.

"The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth," Rakoff wrote in his ruling.

Both the SEC and BofA have defended the earlier settlement proposal as appropriate. But after Rakoff's ruling, the agency weighed its options, either to go to trial or attempt to renegotiate the accord with Bank of America.

On Monday, the SEC said it will "vigorously pursue" its case against Bank of America, adding that it could seek to bring additional charges if supported by the record of evidence that develops in the trial -- meaning it could charge individual executives.

Bank of America spokesman Scott Silvestri said the bank's position "continues to be that the (disclosure document) met all legal requirements."

"We intend to vigorously defend ourselves in court," Silvestri said in a statement.

The SEC trial comes as Bank of America faces pressure from other fronts. The New York Attorney General's office is doing its own investigation into the Merrill Lynch deal and has been drafting what are likely to be civil fraud charges against top bank executives in the coming weeks.

Also, the bank missed a noon deadline Monday to provide additional information about the Merrill Lynch deal to a congressional committee.

Towns, chairman of House Committee on Oversight and Government Reform, told the bank in a letter Friday that it was hiding behind attorney-client privilege, which Congress can refuse to recognize during its investigations. Silvestri declined to comment on whether or not the bank met the deadline, but said Finucane, a member of Bank of America's executive management team, will meet with Towns Tuesday to discuss the matter.

Separately Monday, Bank of America agreed to pay $425 million to government agencies, including the Treasury Department, to exit an arrangement under which public funds might have been used to shoulder losses on $118 billion worth of risky assets from the Merrill Lynch takeover. The option was never used, but the government has argued that the bank benefited from the promise of protection.

The move is part of a broader effort by the bank to reduce its reliance on various forms of government support. Charlotte, North Carolina-based BofA has been one of the largest benefactors of the government's financial rescue program, receiving a total of $45 billion from the taxpayer-financed $700 billion financial bailout program.

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AP Economics Writer Jeannine Aversa in Washington and AP Business Writers Stephen Bernard and Candice Choi in New York contributed to this story.