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DISB Finalizes Settlement Agreement with Bank of America

Tuesday, March 29, 2011
“This sends a strong message that the District of Columbia will not tolerate unethical or unlawful behavior by financial-services entities,” said Acting Commissioner White.

(Washington, DC) — Acting Commissioner William P. White of the DC Department of Insurance, Securities and Banking (DISB) today announced a settlement with Bank of America Securities LLC and Bank of America Investment Services Inc. The settlement requires Bank of America to complete or confirm to DISB its offers to repurchase auction-rate securities (ARS) from District of Columbia clients to settle allegations that the firm’s securities dealers misled investors about the safety of the ARS market.

“DISB is holding Bank of America accountable for engaging in unethical behavior by selling auction rate securities to District of Columbia investors without full disclosure of the risks involved,” said Acting Commissioner White, who enforced the February 3, 2011, signed Consent Order. “This sends a strong message that the District of Columbia will not tolerate unethical or unlawful behavior by financial-services entities.”

Although marketed and sold to investors as safe, liquid, and cash-like investments, ARS are actually long-term investments subject to complex auction processes that failed in early 2008, leading to illiquidity for investors.

“From the day these auctions first failed, DISB has been seeking much needed relief and liquidity for investors stuck with auction rate securities,” the Acting Commissioner added. “I am pleased that Bank of America has agreed to do what’s right by repurchasing clients’ positions, and I expect other firms that sold these securities in the District of Columbia to do the same.”

The order also requires Bank of America to pay an $885,483.62 fine to the District of Columbia. The fine represents the District’s pro-rata share of a $50,000,000 settlement negotiated by a multistate task force of state regulators formed by the North American Securities Administrators Association. In early 2008, state offices began receiving complaints regarding ARS from investors throughout the country.  During the investigation, regulators discovered that Bank of America’s securities dealers failed to adequately inform customers and train employees on the risks associated with buying ARS.

The Consent Order is the final step in the District’s ARS case against Bank of America. DISB has entered into settlements with three other Wall Street firms, which involved sales of ARS totaling $430,794,368. Those settlements have resulted in the payment to the District of $2,017,365.24 in fines.  DISB is actively negotiating similar settlements with other firms regarding ARS sold in the District of Columbia.