SEC Fines Banc of America Securities $10 Million

Information Management Journal, May/Jun 2004 by Swartz, Nikki

Banc of America Securities LLC, a unit of Bank of America Corp., agreed to pay a record $10 million penalty to settle the U.S. Securities and Exchange Commission's (SEC) claims that it violated recordkeeping laws and access requirements laws.

According to the SEC, $10 million is a record fine amount for a violation of this type. The Associated Press (AP) reported that the commission also censured the firm's New Yorkbased securities arm, saying it "repeatedly failed to promptly furnish documents requested by the staff, provided misinformation concerning the availability and production status of such documents, and engaged in dilatory tactics that delayed the investigation."

According to the SEC complaint, during a three-year period beginning in 2001, Banc of America Securities repeatedly provided misinformation to investigators about the availability of e-mails, internal compliance reviews, and supervision records. Specifically, the SEC said the firm failed to pro- duce an e-mail exchange relating to issues its employees knew were under investigation. The commission said the firm also failed to provide other records related to the personal trading activities of a former senior employee. According to the SEC, the violations occurred during an ongoing investigation into whether Bane of America Securities made improper trades before releasing its stock analyst j reports.

The SEC said Banc of America Securities told investigators it could not reproduce e-mails sent before June 2001 without incurring unreasonable expense because it would require restoration from backup tapes. But within a week, the SEC said, the firm restored e-mails created before June 2001 for internal use in dealing with the SEC inquiry. The SEC complaint also said the agency sent investigators to Bane of America Securities' offices in San Francisco in February to review compliance reports. When they arrived, the firm's outside counsel told them that many of the reports had been destroyed and that others could not be located.

According to the SEC investigation, one week after investigators requested copies of internal Bane of America Securities compliance reports, a thirdparty vendor destroyed several boxes of documents it was storing for the firm. Both the firm and the vendor said the destruction was inadvertent. In all, the agency charged, the firm took nearly two years to comply with the agency's document production requests.

Bank of America spokeswoman Shirley Norton told the AP that the bank has implemented several measures "designed to improve its ability to respond to this and other regulatory inquiries," including the creation of a special internal regulatory investigation unit devoted to recovering and producing information for this and other investigations. The bank said it also has developed new procedures and technology to enhance e-mail recovery.

The firm's efforts may be too little, too late. Sec officials said the firm's behavior was among the worst it had ever encountered regarding the production of requested documents. Despite the censure and steep fine, Bane of America Securities settled the case without admitting or denying the SEC's charges. The SEC has said the investigation is ongoing.