WASHINGTON — Bank of America, now Bank of America Merrill Lynch, has returned more than $6.7 billion to its auction-rate securities customers and satisfied its obligations under a settlement announced Thursday with the Securities and Exchange Commission over alleged abusive ARS sales practices.
The SEC reached a preliminary settlement with Bank of America in October 2008, but reserved the right to seek a civil penalty against the bank if it did not meet its obligations.
Under the settlement, the bank had to offer to purchase ARS at par from its individual, charitable, and small-business customers. Nearly 100% of the customers accepted the bank’s offer, resulting in about $4.7 billion of liquidity, the SEC said.
The bank also was required to use its “best efforts” to provide liquidity to its institutional customers. From February 2008 — when the auction-rate securities market collapsed — through October 2010, the ARS holdings of the bank’s institutional customers were reduced by $2 billion, or 56,4%, primarily through settlements with the customers and issuer redemptions, the SEC said. In addition, the bank launched a program in November to offer favorable loans or buybacks to all of its remaining institutional investors, including the so-called legacy customers of Merrill Lynch before it was acquired.
Bank of America also compensated investors who sold ARS below par and reimbursed investors for excess interest costs associated with loans they had to take out because their ARS became illiquid.