Anonymous Tip Leads to SEC Enforcement Action and $10 Million Penalty


The Securities and Exchange Commission announced last week that it had settled an enforcement action against Banc of America Securities LLC (BAS) for violations of recordkeeping and access requirements of the securities laws.  The violations occurred during a pending Commission investigation of BAS begun after the SEC received an anonymous insider’s tip over two years ago.


The SEC stated that it had received the informant’s letter in 2001 and that the letter alleged that senior managers at BAS may have caused the firm to buy or sell securities that it knew would be the subject of the firm's own research reports.  As part of last week’s settlement, BAS agreed to a censure and a $10 million civil penalty for the company’s failure to cooperate in the investigation.


The SEC found that the company “repeatedly failed to promptly furnish documents” requested by agency staff, provided “misinformation” about the availability and production status of such documents, and engaged in “dilatory tactics” that delayed the investigation.


“Today’s action makes clear that we will not tolerate unreasonable delay in responding to our inquiries and will act aggressively to protect the integrity of the Commission’s investigative processes,” said Stephen Cutler, head of SEC Enforcement.


The SEC’s order states that BAS willfully failed to preserve or promptly furnish certain records after they were requested.  In particular, the Commission found that BAS failed promptly to produce (i) electronic mail, including a particular e-mail exchange relating to matters that BAS knew were under investigation, (ii) certain compliance reviews, and (iii) compliance and supervision records concerning the personal trading activities of a former senior employee of the firm.


The SEC penalty was the largest ever against a company for failing to produce documents, SEC spokesman John Heine said.  Bank of America has a market capitalization of roughly $118 billion.


In addition to the censure and $10 million penalty, BAS consented, without admitting or denying the SEC’s findings, to cease and desist from committing or causing violations of Sections 17(a) and 17(b) of the Securities Exchange Act of 1934 and Rule 17a-4(j) thereunder.  The Commission’s investigation is continuing.