SEC Charges Investment Bank with Overstating Regulatory Capital

The SEC charged Bank of America Corporation with violating internal controls and recordkeeping provisions of the federal securities laws after it assumed a large portfolio of structured notes and other financial instruments as part of its acquisition of Merrill Lynch.

The SEC order explained that, at the time of its Merrill Lynch acquisition, Bank of America was required – for purposes of calculating and reporting its regulatory capital – to realize the losses on inherited notes as they matured after it redeemed the notes at par, and to deduct the realized losses as they occurred. However, the SEC order stated, the firm failed to deduct realized losses from its regulatory capital.

After discovering the regulatory capital overstatements in mid-April 2014, Bank of America disclosed them in a Form 8-K filing and corrected its regulatory capital figures. It also took voluntary steps to remediate the insufficiencies that led to the overstatements. According to the SEC, the dollar penalty imposed on the firm "reflects credit for that cooperation," which allowed the SEC to conduct its investigation more effectively.

See: SEC Order; SEC Press Release.