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SEC Rushed Case Against Bank Of America , Left Out Key Charges, Report Says

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WASHINGTON — Securities and Exchange Commission attorneys wanted to bring a case swiftly against Bank of America for allegedly misleading shareholders when it acquired Merrill Lynch, and as a result omitted significant violations from their initial charges, according to an agency watchdog report released Tuesday.

The report by the office of SEC Inspector General David Kotz also found that the agency sought a relatively small penalty against Bank of America, $33 million, after investigators initially "relied substantially on case precedent" to arrive at the figure.

A federal judge threw out that settlement amount and the deal was revised early this year to include a $150 million penalty.

Kotz's report, however, found that the SEC staff operated "ably" under tight deadlines to investigate and bring the case against the biggest U.S. bank.

"The evidence did not show that SEC staff failed to diligently and zealously investigate potential securities-law violations," the report says.

SEC enforcement attorneys felt pressure to bring the case quickly because it was a high-profile issue, the IG's investigation found.

The SEC accused Bank of America of failing to disclose to shareholders before they voted on the Merrill deal that it had authorized Merrill to pay up to $5.8 billion in bonuses to its employees in 2008 even though the investment bank lost $27.6 billion that year. But because of the rush, the report says, the agency failed to also initially charge Bank of America for failing to disclose Merrill's huge losses in the fourth quarter of 2008.

Bank of America, which is based in Charlotte, N.C., was among the hardest-hit banks during the credit crisis. The $45 billion in bailout funds it received included $20 billion for Merrill, putting it among the largest recipients of government aid. It repaid the money last year.

Among the report's recommendations is that the SEC review the level of cooperation among law enforcement agencies on investigations and determine where it could be improved. The report said SEC attorneys expressed the view that the office of New York Attorney General Andrew Cuomo, which also conducted an investigation of Bank of America, failed to cooperate fully with the SEC and refused to share some information.

"We value the report's insights and look forward to addressing its recommendations," SEC spokesman John Nester said.

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