In a joint announcement yesterday with the SEC and state regulators, U.S. Attorney General Eric Holder announced an historic settlement with Bank of America totaling $16.65 billion in penalties and consumer relief -- the "largest civil settlement with a single entity in history," Holder stated. The settlement concerns the government's allegations that BofA (and Merrill Lynch and Countrywide, which BofA has since acquired) defrauded financial institutions and other investors in structured financial products known as residential mortgage-backed securities, or RMBS.

 

Holder stated that the settlement includes an acknowledgement by BofA that it, Merrill Lynch, and Countrywide

sold billions of dollars of RMBS backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the U.S. government.  These loans contained material underwriting defects; they were secured by properties with inflated appraisals; they failed to comply with federal, state, and local laws; and they were insufficiently collateralized.  Yet these financial institutions knowingly, routinely, falsely, and fraudulently marked and sold these loans as sound and reliable investments.  

$7 billion of the money to be paid by BofA will go to homeowners, borrowers, and communities affected by the bank’s conduct.  

 

The SEC separately announced yesterday that it had reached a $245 million settlement with BofA (part of the $16.65 billion global settlement announced by Holder) to settle the SEC's allegations that BofA "failed to inform investors during the financial crisis about known uncertainties to future income from its exposure to repurchase claims on mortgage loans." BofA also settled another SEC case against it related to a RMBS offering as part of the global agreement.

 

The SEC emphasized that the settlement included an admission from BofA that it engaged in the above conduct. Rhea Kemble Dignam, regional director of the SEC’s Atlanta office, stated that

Requiring an admission of wrongdoing as part of Bank of America’s agreement to resolve the SEC charges filed today provides an additional level of accountability for its violation of the federal securities laws.

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