Bank of America Got Break from SEC

The bank's bailout status gave it an advantage, a watchdog found.
By Dan Freed ,

NEW YORK (

TheStreet

) --

Bank of America

(BAC) - Get Report

got a more lenient settlement offer from the

Securities and Exchange Commission

as a result of its status as a bailout recipient, according to a report from the SEC's internal watchdog.

At issue was a proposed 2009 settlement between the SEC and Bank of America related to the bank's disclosures about its acquisition of

Merrill Lynch

.

The SEC charged Bank of America with providing misleading and false information to its investors, but then agreed to a $33 million settlement that would have allowed Bank of America to avoid admitting wrongdoing. U.S. District Court Judge Jed Rakoff rejected to proposed deal before eventually agreeing to a stiffer $150 million fine.

The leniency did not relate to the size of the fine, but rather to Bank of America's issuer status, according to the report by SEC inspector general David Kotz. The sanctions initially proposed by the SEC would have made it more difficult for Bank of America to issue securities.

Bank of America, which received bailout funds under the Troubled Asset Relief Program, argued that its inability to issue securities efficiently might disrupt markets, which were on their way to rebounding after the crisis. The SEC accepted this argument, after initial resistance, the report states. However, the point became moot since the initial settlement was rejected by Judge Rakoff.

The purpose of the report, requested by Rep. Elijah Cummings (D., Md.), was to investigate potential conflicts in the government's role as both shareholder and regulator of Bank of America, among other issues. In general, Kotz's report exonerated the SEC of any serious offenses.

"Despite the Court's rejection of the SEC's first proposed settlement with BofA, the evidence did not show that SEC staff failed to diligently and zealously investigate potential securities law violations," the report stated.

--

Written by Dan Freed in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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