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Bank of America to pay billions to settle fraud, disclosure charges, while one former leader fined

Bank of AmericaThe federal government continues to carry out its strategy to deal with the financial institutions that caused the recent financial crisis – filing civil lawsuits and levying huge fines, but not sending corporate leaders to jail.

The Federal Housing Finance Agency announced Wednesday it has reached a settlement with Bank of America and two companies it owns Countrywide Financial and Merrill Lynch.

The cases alleged violations of securities laws in connection with mortgage-backed securities purchased by Fannie Mae and Freddie Mac, government-sponsored organizations that provide funding for the U.S. mortgage markets, between 2005 and 2007.

Allegations of fraud were made in the Countrywide and Merrill Lynch cases.

Under the agreement, Bank of America will pay $6.3 billion to Fannie and Freddie, and the bank will buy back $3.2 billion of mortgage securities.

Of the 18 mortgage-backed securities suits filed in 2011, the agency has claims remaining in seven suits against various institutions.

In a separate action, New York State Attorney General Eric T. Schneiderman announced Friday a $25 million settlement with Bank of America and its former chairman and CEO, Kenneth D. Lewis, related to the bank’s merger with Merrill Lynch & Co in 2008.

Despite its top executives knowing about growing losses at Merrill Lynch that were estimated at more than $9 billion, Bank of America didn’t disclose that information to shareholders before their vote on a proposed merger with Merrill Lynch.

The attorney general also alleged that the bank’s former leaders, CEO Kenneth Lewis and CFO Joe Price, misrepresented to shareholders the impact that the merger with Merrill would have on Bank of America’s future earnings.

Lewis is barred from serving as an officer or director of a public company for three years and will pay $10 million to New York state.

Schneiderman plans to ask a judge on Friday to make a decision on the lawsuit against Price.

The settlement with Bank of America also requires the bank to continue reforms, including the strengthening of the oversight functions of its Board of Director’s Audit and Disclosure committees, and using an independent disclosure counsel who’ll advise the bank’s directors on the adequacy the company’s disclosures to shareholders.

The bank will also create a Board-level Corporate Development Committee to provide greater oversight of the bank’s acquisition-related activities for five years.

The settlements are the latest in a long string of agreements related to the bank’s role in the nation’s housing financial collapse, which lead to the Great Recession of 2008.

Analysis say the settlement with the Federal Housing Finance Agency is one of the last hurtles Bank of America needed to clear charges against it related to the housing collapse.

Copyright 2014, Rita R. Robison, Consumer Specialist

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