In two separate actions, the SEC brought new charges against Bank of America and UBS for fraudulent behavior that enriched the banks at the expense of investors.

First, on August 6, the SEC charged UBS Securities with failing to disclose to investors that it withheld $23.6 million it received for a collateralized debt obligation known as ACA ABS 2007-2(“CDO”). As a result of UBS’ undisclosed retention of these sums, the SEC alleged UBS’ marketing materials were misleading and investors were consequently harmed. UBS agreed to settle the SEC's charges by disgorging the undisclosed $23.6 million, another $10.8 million it had disclosed as its fee, $9.7 million in prejudgment interest, and a penalty of $5.7 million. UBS did not admit or deny wrongdoing in the settlement. For more information click here.

Second, the SEC charged Bank of America and two of its subsidiaries, Banc of America Securities LLC (now Merrill Lynch, Pierce, Fenner & Smith) and Bank of America Mortgage Securities (BOAMS), with failing to disclose key risks and misrepresenting facts about mortgages in an offering called BOAMS 2008-A, an offering consisting of residential-backed securities. According to the SEC, Bank of America failed to disclose the fact that over 70% of the mortgages backing BOAMS 2008-A came from the bank’s wholesale channel of unaffiliated mortgage brokers, implying that the mortgages had a much higher risk of problems. The SEC further charged that the offering was misleadingly marketed as "prime", intending that it was suitable for conservative investors. The Department of Justice announced a parallel lawsuit against Bank of America, charging that the bank defrauded investors who purchased more than $850 million in residential backed securities in BOAMS 2008-A, and seeking civil penalties for violations of the Financial Institutions Reform, Recover, and Enforcement Act of 1989. For more information, click here and here.

Comment

These actions are indicative of the SEC's and DOJ's continued interest in prosecuting alleged malfeasance arising in connection with the financial crisis of 2007 and 2008. Barring any applicable statute of limitations, we believe the SEC and DOJ will continue to investigate alleged wrongdoing arising during this period.