Bank of America to Pay $16.6 Billion in Record Settlement for Financial Fraud
On August 21, 2014, the Department of Justice (“DOJ”) reached a $16.6 billion settlement with Bank of America and its subsidiaries (“BOA”) to resolve allegations that BOA mislead investors about the risks of subprime residential mortgage backed securities (“RMBS”) during the period leading up to the 2008 financial crisis. This resolution is the largest civil settlement with a single entity in American history. As part of the settlement, the Securities and Exchange Commission brought an administrative proceeding against BOA. See In re Bank of America, Exchange Act Release No. 72888 (August 21, 2014).
In the settlement’s statement of facts, BOA made a number of admissions. For example, BOA admitted that:
- During the second and third quarters of 2009, Bank of America did not disclose that there were known uncertainties relating to (1) whether Fannie Mae had changed its repurchase practices after being put into conservatorship, and the increasing number of overall claims and contested claims from Fannie Mae; and (2) the future volume of repurchase claims from monoline insurers and the ultimate resolution of monoline claims that Bank of America had reviewed and refused to repurchase, but had not been rescinded.
Exhibit A, In re Bank of America, Exchange Act Release No. 72888 (August 21, 2014).
Of the record $16.6 billion settlement, $8.2 billion will be paid to settle federal and state civil claims related to RMBS and other types of fraud. BOA will also pay a $5 billion penalty to settle claims under the Financial Institutions Reform, Recovery, and Enforcement Act. Additionally, $1.8 billion will be paid to settle federal fraud claims related to the origination and sale of mortgages, $1.03 billion to settle federal and state securities claims by the Federal Deposit Insurance Corporation, and $135.84 million to settle claims by the SEC. BOA will also pay $943 million to California, Delaware, Illinois, Kentucky, Maryland, and New York to settle various state claims.
The remaining $7 billion will be used to assist the thousands of investors, including homeowners, borrowers, and communities, harmed by BOA’s misconduct. Further, BOA has agreed to place an additional $490 million in a tax relief payment account to help cover some of the tax liability that will be incurred by consumers receiving relief.
Under the settlement, BOA has agreed to hire an independent monitor to determine whether its obligations have been satisfied.
The primary materials for this case can be found on the DU Corporate Governance website.