WASHINGTON - Merrill Lynch has agreed to pay $131.8 million to settle U.S. civil charges that it misled investors about risky mortgage bonds it sold ahead of the 2008 financial crisis.
The Securities and Exchange Commission
announced the settlement Thursday. Merrill Lynch was accused using misleading
materials to market the investments in 2006 and 2007. The materials gave
investors a false impression that the collateral for the securities was chosen
by an independent firm, the SEC said.
Merrill neither admitted nor denied
the allegations. But it did agree to refrain from future violations of the
securities laws. The SEC also censured Merrill, bringing the possibility of a
stiffer sanction if the alleged violation is repeated.
When the housing bubble burst in 2007,
millions of home borrowers defaulted on their loans and bundles of mortgages
sold by big banks left investors with billions in losses.
Bank of America acquired Merrill at the
height of the crisis in September 2008.
The SEC allegations against Merrill
involved its marketing of pooled securities known as collateralized debt
obligations. Wall Street banks sold CDOs at the height of the housing boom.
They combine slices of debt with varying levels of risk.
The settlement was the latest in a
series of federal actions against Wall Street banks as the government continues
to resolve claims over their conduct five years after the crisis.
Goldman Sachs, JPMorgan Chase,
Citigroup and other big banks have been accused of abuses in sales of
securities linked to mortgages in the years leading up to the crisis. Together,
they have paid hundreds of millions in penalties to settle civil charges
brought by the SEC, which accused them of deceiving investors about the quality
of the bonds they sold.
Last month JPMorgan, the biggest U.S.
bank, agreed to pay $13 billion in a civil settlement with the Justice
Department and state regulators over its sales of risky mortgage securities. It
was the largest settlement ever between the Justice Department and a
Justice also has accused Bank of
America of civil fraud in failing to inform investors of risks in its sale of
$850 million in mortgage securities in 2008. The SEC filed a related lawsuit.
Bank of America has disputed the allegations.