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- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
In the largest civil settlement ever reached by the U.S. and a single company, Bank of America agreed Thursday to pay $16.65 billion to the Department of Justice for selling toxic residential mortgage-backed securities in the years leading up to the financial crisis.
Attorney General Eric Holder said during a Thursday morning press briefing that the settlement with Bank of America marks a “historic step forward in our ongoing effort to protect the American people from financial fraud – and to hold accountable those whose actions threatened the integrity of our financial markets and undermined the stability of our economy.”
Under terms of the settlement, BofA must pay $9.65 billion in cash to the Justice Department, several states, and other government agencies, and pay $7 billion in relief to struggling homeowners, borrowers and communities affected by the bank’s conduct. “This is appropriate given the size and scope of the wrongdoing at issue,” Holder said.
As part of the settlement, BofA will pay $245 million to the Securities and Exchange Commission relating to charges filed by the SEC in August 2013 alleging that the bank “in its own words ‘shifted the risk’ for losses to investors when it failed to disclose that more than 70% of the mortgages backing the RMBS offering called BOAMS 2008-A originated through its 'wholesale' channel of mortgage brokers unaffiliated with Bank of America entities.”
The SEC also filed new charges Thursday in a settled administrative proceeding, in which Bank of America admits that it failed to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims stemming from more than $2 trillion in residential mortgage sales from 2004 through the first half of 2008 by the bank and certain companies it acquired.
To settle the new SEC case, BofA agreed to pay a $20 million penalty while admitting to facts set out in the SEC’s order, which requires Bank of America to cease and desist from causing any violations and any future violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-13.
More than $490 million of the settlement will cover tax liabilities for consumers. “Unfortunately, because Congress has failed to extend a law ensuring that most of this relief would not be taxable income, this debt relief will create tax liability for many consumers,” Holder said. He then called on Congress to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act of 2007.
Until Congress acts, Holder said, “the hundreds of thousands of consumers we have sought to help through our settlements with JPMorgan Chase, Citigroup, and now Bank of America may see a significant tax bill just as they are beginning to see the light at the end of a dark financial tunnel.”
He added: “I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the ‘cost of doing business.’”
The BofA settlement outcome, Holder continued, “does not preclude any criminal charges against the bank or its employees. Nor was it inevitable, over these last few weeks, that this case would be resolved out of court.”
Brian Moynihan, BofA's CEO, said in a Thursday statement that “We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future.”
The settlement is expected to reduce BofA's third-quarter 2014 pretax earnings by $5.3 billion, or approximately $0.43 per share after tax. The EPS impact reflects the varying tax treatment of the components of the settlement, the bank said.
Dennis Kelleher, president and CEO of Better Markets, said in a statement that while DOJ’s settlement with BofA is "slightly better than the last two" in that "it provides additional information in the so-called ‘Statement of Facts,’ – which have not been admitted" the settlement "still conceals the key facts from the American people."
For example, Kelleher asked: "How many tens of billions of dollars did Bank of America’s customers, clients, investors and others lose due to years of knowing, systemic fraud? How much did Bank of America make from its illegal actions? How many Bank of America employees, supervisors and executives were involved in or aware of the fraudulent conduct?"
As important, he continued, "banks do not commit crimes; bankers do. Until those individuals, including executives, are held personally and meaningfully accountable, everyone should expect more crime from Wall Street."
Check out BofA to Pay $16.65 Billion to End U.S. Mortgage Probes on ThinkAdvisor.