By Andrew Ackerman and Christina Rexrode
Bank of America Corp. can continue selling shares in hedge funds
and other private offerings after U.S. securities regulators gave
the bank a short-term waiver from certain restrictions triggered by
a recent fraud settlement.
The Securities and Exchange Commission on Tuesday said it would
waive for 30 months a ban on the bank selling shares in hedge funds
and startups to wealthy investors. In return, the bank will have to
hire an outside consultant to monitor and report on the bank's
behavior.
The agreement resolves an impasse at the agency, where
commissioners had been deadlocked over whether to grant a waiver
from the SEC's "bad actor" rule, which automatically bars financial
firms from selling private offerings for five years if they violate
securities laws. The restrictions were set to kick in this week
after U.S. District Judge Max Cogburn in North Carolina signed off
on the bank's $136 million settlement with the SEC over flawed
mortgage-backed securities.
Under the deal with the SEC, the bank will have to comply with
recommendations of the outside consultant. It will have to request
additional relief from the SEC to avoid triggering the sales
restrictions for the remaining 30 months of the five-year ban.
Bank of America had argued it needed the ability to keep selling
shares in hedge funds, startups and other private offerings as a
key service to wealthy individuals and institutional customers.
It also noted, in its request to the SEC for a waiver, that two
executives referred to in the SEC's lawsuit had left the bank. It
also said it had tightened controls around how it issues
securities, including requiring senior business and risk executives
to sign off on such offerings.
The agency's two Democratic commissioners, Kara Stein and Luis
Aguilar, had initially fought granting the waiver from the "bad
actor" rule, amid concerns the agency has been too lenient on Wall
Street firms that repeatedly violate the securities laws, according
to people familiar with the matter. The agency's two Republican
commissioners, Daniel Gallagher and Michael Piwowar, have generally
backed waivers that the enforcement staff recommends.
The Democrats' concerns have upended a process in which staff
have historically granted the waivers as long as the banks have
taken certain "remedial" steps, such as firing employees
responsible for the misconduct. The impasse is unusual at least in
part because SEC Chairman Mary Jo White, who has been the crucial
third "yes" vote to grant such waivers for other companies, was
recused from voting on Bank of America's request. Ms. White
represented former Bank of America Chief Executive Kenneth Lewis in
private practice before joining the commission last year.
The commission didn't reveal the breakdown of the vote approving
the waiver.
Mr. Gallagher says waivers should be processed "dispassionately"
by the SEC's professional staff.
"If we are going to deny waivers as a way of inflicting
additional punishment for past wrongdoing, essentially treating
disqualifications as enforcement remedies, then I will have to
re-evaluate whether I can vote on an overall enforcement case
without considering waiver issues at the same time," Mr. Gallagher
said earlier this month, in a statement.
Bank of America also received a separate waiver pertaining to
its ability to manage mutual funds.
Still, the bank didn't get all it sought: The SEC declined to
grant relief from restrictions on the bank's ability to quickly
issue stocks and bonds without the speed bump of an SEC review,
according to people familiar with the matter.
Bank of America's settlement with the SEC goes back to a case
the agency filed against the bank last year, with the SEC alleging
that the bank didn't properly inform investors about the underlying
risks of mortgage securities it was selling. The bank initially
fought the accusations, but then agreed to settle the lawsuit as
part of the bank's record $16.65 billion mortgage-securities
settlement with the Justice Department and other government
agencies this summer.
Write to Andrew Ackerman at andrew.ackerman@wsj.com and
Christina Rexrode at christina.rexrode@wsj.com
Access Investor Kit for Bank of America Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0605051046
Subscribe to WSJ: http://online.wsj.com?mod=djnwires