BofA to pay US$33Million fine over Merrill bonuses

Filed Under (Business News) by fred on 04-08-2009

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The Securities and Exchange Commission filed charges Monday against Bank of America for misleading investors about billions of dollars in bonuses paid to top executives at Merrill Lynch following its purchase of the brokerage giant.

But the SEC simultaneously announced that it would settle with the Charlotte, N.C.-based lender, who will pay a penalty of $33 million as a result.

Calling the settlement a “constructive conclusion” to the controversial subject, Bank of America neither admitted nor denied the charges. The settlement with the SEC will remain subject to court approval.

Regulators alleged that Bank of America failed to disclose plans to as much as $5.8 billion in bonuses for fiscal year 2008 in its proxy statement. Instead, Bank of America told shareholders that Merrill had agreed not to pay year-end performance bonuses, according to the SEC.

“Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today’s settlement,” Robert Khuzami, Director of the SEC’s division of enforcement, said in a statement.

Merrill’s decision to pay big bonuses first came to light in February, after New York State Attorney General Andrew Cuomo accused the firm of “secretly” rewarding executives before its merger with BofA closed.

The subsequent investigation by state officials ultimately led to a string of revelations, including Merrill’s decision to move up the date of its year-end bonus payments.

Bank of America chief executive officer Ken Lewis also alleged during the investigation that federal regulators threatened to remove him and other board members if Bank of America backed out of the deal.

Congress waded into the issue shortly thereafter, as lawmakers grilled Lewis, Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson on the matter.

Rep. Darrell Issa, R-Calif., the ranking member for the House Committee on Oversight and Government Reform, said that the SEC’s charges against BofA offered a “validation” of the concerns of his fellow committee members.

The committee has been looking into what transpired after BofA agreed to buy Merrill and Issa hinted that the investigation may not be over.

“The circumstances certainly underscore the need for us to continue our investigation of the Bank of America — Merrill Lynch acquisition and the role officials at the Treasury and Federal Reserve had in pressuring the acquisition to move forward,” Issa said in a statement.

Cuomo’s office also indicated Monday that Bank of America may not be free from further scrutiny, adding that they were continuing their investigation about whether Merrill’s bonuses violated state securities laws.

Separately, Bank of America announced a shake up in some of its top management ranks Monday, including the hiring of former Citigroup  executive Sallie Krawcheck to run the bank’s global wealth management unit.

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AIG shouldn’t even pay bonuses

Filed Under (Business News) by Fred Chan on 15-03-2009

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Under pressure from the Treasury Department, insurance giant AIG plans to scale back bonuses and compensation for some of its top-earning employees.
AIG has agreed to restructure bonus payments to its employees.

At the meeting Wednesday, Geithner told Liddy that millions of dollars in bonuses to senior employees were unacceptable and needed to be renegotiated, according to a senior administration official.

While the bonuses were never a secret, the official told CNN, Geithner felt giving them “was still inappropriate, given the state of the economy and the recent restructuring of the AIG agreement.” AIG received at least $170 billion in federal bailout money.

CNN obtained a letter Saturday from AIG Chairman and CEO Edward Liddy to Treasury Secretary Timothy Geithner, in which Liddy pledges in the letter to reduce 2009 bonus payments, which AIG refers to as “retention payments,” by at least 30 percent.

Liddy also addresses steps to limit compensation in AIG Financial Products, the London-based unit responsible for issuing the risky credit default swaps, which on several occasions has brought the company to the brink of collapse.

In the letter, Liddy says the unit’s 25 highest-paid contract employees will reduce their salaries to $1 this year and all other officers in the unit will reduce their salaries by 10 percent. Other “non-cash compensation” will be reduced or eliminated.

Liddy, who took the helm of the company in September after it had nearly failed, also refers to a conversation he had with Geithner last week, which the AIG chief describes as “a difficult one for me.”

Liddy says in the letter that he personally does not receive a bonus, but that some bonus payments are unavoidable, because they are binding legal obligations of the company, and “there are serious legal, as well as business consequences for not paying.”

Some of the bonus payments are due on Sunday, according to the letter.

Liddy, however, makes clear that he made the changes with trepidation, saying in the letter: “I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today,” specifying that if employees believe the company will have trouble attracting and retaining “the best and the brightest … if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

The company, which lost a record $62 billion in the fourth quarter of 2008, has more than 74 million insurance policies issued in 130 countries around the world. – CNN

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