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(Reuters) — Bank of America Corp. has agreed to pay $131.8 million to settle U.S. Securities and Exchange Commission charges that its Merrill Lynch unit misled investors about collateralized debt obligations it structured and sold.
The regulator on Thursday said Merrill failed to tell investors that hedge fund firm Magnetar Capital L.L.C. exercised significant influence in choosing collateral underlying two CDOs in 2006 and 2007.
It also accused Merrill of maintaining inaccurate books and records on a third CDO, Auriga.
The SEC said Magnetar took equity positions in the $1.5 billion Octans I CDO and $1.5 billion Norma CDO I and hedged them with short positions.
It said this meant Magnetar's interests may not have been aligned with those of other investors.
Merrill "portrayed an independent process for collateral selection that was in the best interests of long-term debt investors," George Canellos, co-director of the SEC enforcement division, said in a statement. "Investors did not have the benefit of knowing that a prominent hedge fund firm with its own interests was heavily involved behind the scenes in selecting the underlying portfolios."
The $131.8 million payment includes a $56.3 million civil fine, $56.3 million of disgorged funds, and $19.2 million of interest. Bank of America did not admit or deny wrongdoing. It bought Merrill on Jan. 1, 2009.
Bank of America spokesman Bill Halldin said the bank is pleased to settle. The second-largest U.S. bank is based in Charlotte, N.C.
In a statement, Magnetar said it has cooperated with the SEC, and that commission staff recommended not to bring civil charges against it over the relevant CDOs. "We are pleased that these matters are now behind us," it said.