Tags: Bank of America | SEC | Penalty Relief | toxic-mortgage

Bank of America Said to Make New Pitch to SEC for Penalty Relief

Friday, 07 November 2014 05:51 PM

Bank of America Corp. is making new efforts to resolve a stalemate at the U.S. Securities and Exchange Commission that is holding up a final piece of the lender’s record $16.7 billion toxic-mortgage settlement, two people familiar with the matter said.

In a letter last week, the bank’s top lawyer Gary Lynch made a pitch to the agency’s commissioners to waive additional sanctions set to kick in when the settlement is entered in court, said the people, who asked not to be named because the entreaty was private. Lynch argued in part that the firm is being unfairly treated because other banks had been given waivers in similar cases.

A former SEC enforcement director, Lynch said saddling the bank with a penalty that could include barring it from selling investments in hedge funds would be unprecedented and cause reputational damage, the people said. The case remains in purgatory because SEC Chairman Mary Jo White is recused, while the agency’s Democratic and Republican members are deadlocked.

“They will not be able to engage in some of the investment-banking business that is highly profitable” if they fail to get the waiver, said Marlon Paz, a partner at law firm Locke Lord LLP in Washington. “That would be a show-stopper.”

Emerging Risk

The impasse is another headache for Bank of America, which like most Wall Street firms is still trying to move beyond a raft of legal problems arising from the 2008 financial crisis. Y

The bank has had to set aside $400 million for a currency-manipulation probe, wiping out third-quarter profit.

At the SEC, the squabble among the commissioners highlights an emerging risk for big banks, which must seek waivers to avoid additional sanctions that are triggered when they resolve enforcement cases.

Once a routine job handled by staff, the waivers have become a flashpoint at the five-member commission. Democratic Commissioners Luis Aguilar and Kara Stein argue that the extra penalties may be appropriate for recidivist Wall Street firms.

“It’s fair to say during 2014 the commission has paid way more attention to waivers than it ever has in the past,” Elizabeth Murphy, an SEC attorney, told a securities law conference in New York this week.

While the commissioners are trying to negotiate a resolution in Bank of America’s case, there hasn’t been much progress. A vote on the waivers had been scheduled for last week, but was scrapped at the last minute, one of the people said.

A 2-2 vote would be a denial of the relief being sought by Bank of America. Lawrence Grayson, a spokesman for the Charlotte, North Carolina-based bank, declined to comment, as did SEC spokesman John Nester.

Three Penalties

There are three main penalties at issue in the Bank of America matter. The harshest is a ban on managing mutual funds and the commission is expected to issue a waiver on that, people familiar with the matter have said. The bank, however, will probably lose its bid for a less significant waiver, taking away a privilege that allows a firm to issue its own shares or bonds without SEC approval.

The hold-up is over a waiver that will allow the bank to continue seeking investors for private firms, such as technology companies that have yet to go public and hedge funds, the people said. The SEC’s staff, according to one of the people, has recommended that the commissioners approve the relief.

That waiver was the main focus of Lynch’s letter. He argued that without it the SEC would be harming areas of the bank’s brokerage business that had nothing to do with the misconduct outlined in the SEC case.

Increasing Pressure

How the SEC resolves the matter could affect not only Bank of America, but whether other financial firms decide to settle investigations or go to trial, securities lawyers said. Though most cases don’t face the same deadlock, former SEC officials say increasing pressure from Capitol Hill and investor advocates to send a tougher message to Wall Street may bog down future enforcement actions.

“It raises a lot of challenges and it’s just very hard to work through,” said William McLucas, a partner at law firm Wilmer Cutler Pickering Hale and Dorr LLP in Washington and a former SEC enforcement director. “I don’t know where it’s going to land.”

The U.S. Department of Justice, SEC, and other regulators announced a global settlement with Bank of America in August over claims that it peddled shoddy mortgage securities without disclosing all the risks to investors. Most of the alleged wrongdoing involved Merrill Lynch and Countrywide Financial Corp., companies Bank of America bought.

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Bank of America Corp. is making new efforts to resolve a stalemate at the U.S. Securities and Exchange Commission that is holding up a final piece of the lender's record $16.7 billion toxic-mortgage settlement, two people familiar with the matter said.In a letter last week,...
Bank of America, SEC, Penalty Relief, toxic-mortgage
Friday, 07 November 2014 05:51 PM
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