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Bank of America agrees to a $6.75-million fine to settle Justice Department charges that it misled customers.
By JEFF HARRINGTON
© St. Petersburg Times, published November 18, 2000
TAMPA -- Bank of America Corp. has agreed to pay a civil fine of $6.75-million and set aside $11.5-million for investor losses to end the last in a series of governmental probes into its sales practices in the early 1990s.
The latest investigation into the Charlotte, N.C., megabank, formerly called NationsBank, was launched by the U.S. Attorney's Office in Tampa two years ago. At issue was whether the bank was criminally liable for allegedly misleading investors into buying securities they thought were federally insured.
The Justice Department zeroed in on two funds run by NationsSecurities, the brokerage arm of the bank that was then co-owned by NationsBank and Dean Witter Financial Services. Last month, Dean Witter agreed to pay $11.5-million to a settlement fund to offset investor losses after interest rates rose sharply in 1994.
As with previous settlements with securities regulators and state agencies, the bank admitted no wrongdoing in the deal disclosed Friday.
"We were pleased we could work with (the U.S. Attorney's Office) for the benefit of investors," said Bank of America spokeswoman Ann McNeish.
A spokesman for the U.S. Attorney's Office declined to comment beyond a brief release. A three-page settlement agreement notes that NationsBank and its affiliates already have paid about $4-million in restitution to investors.
Jonathan Alpert, a Tampa attorney who led a class-action case on behalf of investors who maintain they were duped, said he was pleased with the denouement even though no criminal charges were filed.
"Bank of America has now entered into settlements with Texas, with Florida, with the securities agencies and now with the Department of Justice," Alpert said. "Some important principles have been vindicated . . . that no one is above the law and what NationsBank, now Bank of America, did was wrong."
The allegations against the bank originated in Tampa in 1994 when NationsBank broker David Cray told the St. Petersburg Times that his company was using misleading sales practices. Cray lost his job after publication of the story and filed suit against NationsBank.
The story prompted the class-action case, led by Alpert's law firm, and eventually investigations by Florida, Texas, the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the National Association of Securities Dealers. Other banks were investigated as well for similar practices.
In the NationsBank case, regulators focused on two government bond funds containing risky derivatives that the securities unit was selling at the bank and, according to investigators, was promoting as part of the bank.
SEC commissioner Arthur Levitt has said NationsSecurities "blurred the difference between the bank and the broker dealer." In so doing, he said, the company confused customers about the differences between uninsured, higher-risk funds and bank products that are insured by the Federal Deposit Insurance Corp.
More than 11,000 customers nationwide invested more than $300-million in the two closed-end funds in question, giving Nations-Securities more than $11-million in earnings. More than 65 percent of the investors were older than 60.
In December 1995, the bank agreed to pay $30-million to settle the class-action lawsuit. Three years later, it settled with federal regulators, agreeing to pay a $6.75-million fine split between the agencies.
The Department of Justice investigation did not begin until May 1998, after the other investigations were settled.
The issue is not completely closed yet.
After more than four years of wrangling, attorneys only recently finalized a list of claimants who would be eligible for a payout in the class-action. Before investors are paid, the list must by approved by U.S. District Judge Steven Merryday in Tampa. The judge's office has not indicated when he would make a decision.
- Information from Times files was used in this report.