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BofA May Settle Fund Charges

The bank is close to reaching a deal to pay more than $250 million in the probe of illegal or improper trading.

March 12, 2004|From Reuters

Bank of America Corp. may pay more than $250 million to settle charges that it hurt ordinary investors by helping favored clients trade mutual funds improperly or illegally, a person familiar with the matter said Thursday.

The No. 3 U.S. bank, which is based in Charlotte, N.C., would join Alliance Capital Management Holding, MFS Investment Management and others in settling with regulators probing abuses in the $7.5-trillion mutual fund industry.

Like Alliance and MFS, Bank of America may agree to reduce fund fees, the person said. A settlement may be reached this month but is not imminent, people familiar with the matter said. Alliance agreed to pay $250 million, and MFS, part of Canada's Sun Life Financial Inc., agreed to pay $225 million.

"Bank of America needs to put this issue behind it," said Jim Lyon, who helps invest $400 million for Oakwood Capital Management in Los Angeles and doesn't own its shares. "For this to play out week after week doesn't help their marketing efforts to build their brand and build trust with customers."

Bank of America, which promises "higher standards" in its advertising campaign, has been tarnished by various probes.

Italian investigators are examining its role in the collapse of food company Parmalat. The bank on Wednesday agreed to a $10-million SEC penalty for failing to produce documents in a separate probe of trading. It also faces allegations of issuing tainted stock research.

New York Atty. Gen. Eliot Spitzer launched the fund probes in September. He accused Bank of America of helping the Canary Capital Partners hedge fund illegally trade its Nations funds. Canary settled with Spitzer for $40 million without admitting or denying wrongdoing.

Bank of America spokesman Robert Stickler, Spitzer spokeswoman Juanita Scarlett and SEC spokesman Herb Perone declined to comment. The bank hopes in early April to complete its purchase of FleetBoston Financial Corp., which was originally valued at $47 billion.

Spitzer said Bank of America helped Canary trade Nations funds after-hours at stale prices, known as "late trading," and conduct market-timing transactions. He charged former Bank of America broker Theodore Sihpol with securities fraud in the matter.

Fund prospectuses often prohibit market timing, which is quick trading to benefit from pricing inefficiencies at ordinary investors' expense.

Bank of America, which last year posted a $10.8-billion profit, or $7.13 a share, on March 1 said it might need to pay more than the $100 million it set aside for fund probes.

"A quarter of a billion dollars is only a small percentage of Bank of America's earnings, but it's substantial, it could reduce profit, and it will sting," Lyon said.

Bank of America shares fell 44 cents to $79.55 on Thursday on the New York Stock Exchange.

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