Bank of America, FleetBoston Agree to $675 Million in Penalties
Mar 22nd, 2004 • Posted in: NewsWASHINGTON
Days before shareholders approved a merger of the two firms, Bank of America and FleetBoston Financial last week agreed to pay $515 million for alleged mutual-fund trading violations that hurt smaller investors.
As part of the settlement, eight members of the board of directors of Nations Funds, which oversees Bank of America’s mutual funds, will resign or not be reappointed when their terms expire next year.
The firms’ $515 million in penalties, coupled with an agreement to reduce investors’ fees by $160 million over the next five years, makes last week’s deal the largest settlement to date in the ongoing mutual fund scandal.
Allegations of market timing and other abuses have rocked the $715-million mutual fund industry since last September, when New York attorney general Elliot Spitzer pledged to rout out abuses.
One of Spitzer’s earliest victory’s found Canary Capital Management LLC agreeing to pay $40 million to settle charges that it engaged in market timing and after-market trading.
Though not charged at the time, Bank of America was implicated as one of Canary’s trading partners, noted the Associated Press. Last week’s deal ends Spitzer’s scrutiny of the firm.
The agreement also marks the first time that the mutual fund crackdown has targeted a board of directors. Spitzer last week said that shift is deliberate and should put other boards on notice to do the right thing.
“What we are signaling to the fund world is that board activity is going to be a subject of significant inquiry on our part,” Spitzer said, according to the New York Times. “Where boards were not sufficiently inquisitive about the role of market timers and late traders, we will seek appropriate redress.”
Of the penalties assessed last week, Bank of America will pay $125 million in fines and $250 million in restitution to investors. FleetBoston will pay $70 million in fines and another $70 million in restitution.
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