SEC to take BofA to trial over Merrill Lynch bonuses

The Securities and Exchange Commission said Monday that it would go to trial against Bank of America Corp. over bonuses at Merrill Lynch, opening the possibility of also bringing charges against bank executives, a week after a judge’s stinging rejection of a $33-million settlement of the case.

The SEC said it would “vigorously pursue” its case against BofA, which acquired Merrill in a hastily arranged deal a year ago. The agency had accused the bank of failing to disclose to shareholders that it had authorized Merrill to pay up to $5.8 billion in bonuses.

The SEC has been weighing its options since U.S. District Judge Jed Rakoff called the proposed settlement a breach of “justice and morality” and ordered the case to trial. Another route would have been to try to renegotiate the accord with BofA.

“We firmly believe that the settlement we submitted to the court was reasonable, appropriate and in the public interest,” the SEC said in a statement.

The agency had made that argument in briefs filed in recent weeks to Rakoff. BofA also had defended the settlement as appropriate.

Rakoff had questioned why individual executives at Charlotte, N.C.-based Bank of America weren’t charged by the SEC. His unprecedented rejection of the settlement put the SEC in a touchy legal situation.

The agency on Monday notified the federal court in Manhattan, where Rakoff issued his ruling a week earlier, that it had decided to proceed to trial in the case.

The SEC said it could seek to bring additional charges if supported by the record of evidence that develops in the trial, meaning that it could seek to charge individual executives.

“We will vigorously pursue our charges against Bank of America and take steps to prove our case in court,” the SEC statement said.

“We will use the additional discovery available in the litigation to further pursue the facts and determine whether to seek the court’s permission to bring additional charges in this case,” it said.

BofA spokesman Scott Silvestri had no immediate comment.

Bank of America agreed to pay the $33 million in the settlement without admitting or denying wrongdoing. The bank has said it didn’t violate disclosure rules but wished to avoid litigation with the SEC at a time of market uncertainty.

Also Monday, Bank of America agreed to pay the government $425 million to end an arrangement under which public funds might have been used to shoulder losses on $118 billion of risky assets the company acquired in buying Merrill Lynch. The option wasn’t used, but the government has argued that the bank benefited from the promise of protection.

The move is part of an effort by BofA, one of the largest recipients of federal bailout money, to reduce its reliance on government support.