November 10, 2014 — U.S. securities laws protect the investing public by requiring financial institutions and other public companies to properly report their earnings and losses. Compliance with the law necessitates that institutions develop and maintain internal recordkeeping and accounting controls to track that information. When institutions break the law by turning a blind eye to their own failures, they should expect to be reported to the whistleblower program initiated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The program provides for monetary awards for informants who notify the Securities and Exchange Commission (SEC) with credible, specific and timely information about an institution’s decision not to implement the internal controls required by law. Whistleblowers could be rewarded with ten to thirty percent of the amount the government recovers, provided it tops $1 million.
Bank Of America To Pay $7.65 Million Penalty For Failure To Maintain Adequate Recordkeeping Controls To Track Losses From Regulatory Capital
The SEC has charged Bank of America Corporation with violating federal securities laws by failing to maintain adequate internal controls and recordkeeping provisions concerning disclosures related to regulatory capital. To resolve the charges, Bank of America will pay a $7.65 million penalty.
“Regulatory capital” is the amount of capital a bank is required by regulation to hold. The requirement is intended to establish a buffer against unfavorable market conditions.
When Bank of America acquired Merrill Lynch in 2009, it took over a large portfolio of structured notes, which it recorded at a discount to par. This practice was entirely permissible, but Bank of America was then required by applicable rules to take losses on the notes when they matured because it had redeemed the inherited notes at par. In March 2014, after 90 percent of the notes had matured, Bank of America had not deducted any of the realized losses from its regulatory capital. As a result, as the notes continued to mature and Bank of America continued to not deduct them, Bank of America continued to overstate its regulatory capital in SEC filings. As years passed, Bank of America eventually was overstating its regulatory capital by billions of dollars.
The relatively modest amount of the $7.65 million penalty reflects Bank of America’s internal discovery of the overstatement, disclosure in a Form 8-K filing and cooperation with the SEC in redressing the prior overstatements.
Whistleblowers Notify SEC of Violations
While Waters & Kraus was not working on this particular SEC matter, we are representing tipsters in other instances of SEC fraud. If you have comparable claims against a your employer or anyone else engaged in securities fraud, contact us or call our qui tam attorneys at 855.784.0268 to learn more about our practice and how we can work together to notify the government about SEC fraud and abuse. Our qui tam lawyers, George Tankard and Anne Izzo in our Maryland office, are committed to advancing and protecting informants’ interests in whistleblower lawsuits.
