CHARLOTTE, N.C. (HedgeWorld.com)–Bank of America Corp. officials said they will seek reimbursement from hedge funds and other investors that used the bank’s trading systems to conduct market timing of mutual funds outside B of A’s own Nations Funds complex.
Bank officials made the vow in a statement released the same day that Securities and Exchange Commission officials and New York State Attorney General Eliot Spitzer announced a US$455 million settlement with the bank over charges it allowed hedge fund Canary Capital Partners LLC, Secaucus, N.J., to conduct market timing and late trading of its Nations Funds mutual funds Previous HedgeWorld Story.
In settling with the SEC, Bank of America agreed to pay US$250 million to reimburse mutual fund investors harmed by market timing and late trading. Of that amount, about US$25 million would go directly to Nations Funds mutual fund shareholders. The remainder would be paid to shareholders of other external mutual funds in which market timing and late trading were conducted through Bank of America’s Broker Dealer Services clearing broker trading systems.
The bank also will pay a US$125 million fine. The money from the fine and the reimbursement will go into a government-administered fund and then be distributed to shareholders, said Robert Stickler, Bank of America spokesman.
Additionally, Bank of America will sell the broker-dealer clearing service that hedge funds and other investors used to time B of A mutual funds and other external mutual funds. Mr. Stickler described the business as a small part of Bank of America’s overall operations and unrelated to the bank’s other clearing services.
In a separate agreement with the New York State Attorney General’s office, Bank of America agreed to reduce the fees it charges mutual fund investors by US$80 million over the next five years.
And eight of the Nations Funds’ board members will resign or leave the board by the end of this year in connection with their granting of market-timing capacity to Canary.
Canary has thus far been linked to late trading and market-timing allegations at 10 mutual fund companies. Bank of America’s relationship with the hedge fund was among the first disclosed by Mr. Spitzer’s office. In a September announcement of a settlement with Canary, and in a felony complaint against B of A broker Theodore C. Sihpol, the attorney general detailed the hedge fund’s ties to Bank of America.