Bank of America Corp. and FleetBoston Financial Corp. yesterday struck an unusual joint deal with securities regulators that will cost the banks $675 million to settle charges that they had defrauded shareholders by allowing select investors to improperly trade in their mutual funds.
Regulators are also forcing out eight trustees of Bank of America’s Nations Funds. The expulsion is the first time regulators have held mutual fund trustees, who are akin to directors of a corporate board, accountable for allowing improper behavior.
Coming on the eve of the two institutions’ merger, the timing of the deal was so crucial that attorneys negotiated all weekend to reach a “preliminary” agreement that they could announce yesterday. The banks are scheduled to hold separate shareholder meetings tomorrow for votes on the takeover.
“It was very desirable to have the agreement in place so the shareholders could see it before the final vote,” said Bank of America spokesman Robert L. Stickler. Bank of America chief executive Kenneth D. Lewis said in a statement that the two banks “now look forward to focusing our energies on growing our business.”
The deal represents the largest penalties regulators have secured so far in the mutual fund industry scandal. The payments are also much greater than what either bank had initially suggested or expected it would pay. Regulators said the payments reflect the fact that the scope of market timing at Fleet’s Columbia Funds was significantly more extensive than first thought, while the wrongdoing at Bank of America involved multiple levels of the company and was so egregious as to warrant a stiffer punishment than they had levied in previous cases.