BAC Bank of America Corporation

By Dave Michaels 

WASHINGTON -- Bank of America Merrill Lynch will pay over $15 million to settle claims that its traders lied about how much they paid to acquire mortgage bonds, allowing the bank to charge a higher price to clients buying securities.

The sanction includes $10.5 million that must be returned to customers and a $5.2 million civil penalty, the Securities and Exchange Commission said Tuesday. In some cases, the SEC said, Merrill's traders also failed to disclose that their markups "bore no reasonable relationship to the prevailing market prices."

The settlement is the latest example of the government's battle with Wall Street over brokers accused of lying about the prices they paid to obtain bonds. A U.S. appeals court last month tossed out the conviction of former Jefferies Group LLC trader Jesse Litvak, who was accused of cheating customers out of $2 million by inflating prices he said he paid for residential mortgage-backed bonds.

Mr. Litvak's long-running criminal case became a symbol of a government crackdown on Wall Street practices and led to changes at many dealers, from mandatory training to heightened surveillance of traders.

The SEC also said Merrill Lynch failed to supervise the accused traders because the bank's policies weren't reasonably designed to prevent or detect the wrongdoing. The allegations covered a period from 2009 to 2012 and involved sales of residential mortgage-backed securities.

A spokesman for the bank said Merrill has improved its procedures since that time and addressed the problems raised by regulators.

The bank neither admitted nor denied the SEC's claims.

"In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information," said Daniel Michael, chief of the SEC's complex financial instruments unit.

The case is the latest instance of Bank of America having to pay to settle government probes over mortgage-related misdeeds.

In 2014, the bank paid $16.7 billion to settle government accusations it sold flawed mortgage securities in the run up to the 2008 crisis, which was the largest settlement ever reached between the U.S. and a single company.

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

June 12, 2018 12:43 ET (16:43 GMT)

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