Bank of America and FleetBoston Reach $675 Million Settlement over Mutual Fund Scandal

Strategic Insights -

Bank of America and FleetBoston Financial have reached a $675 million settlement with regulators over improper trading in their mutual funds, requiring Bank of America to replace most of its fund directors within a year. The settlement is the largest to date in the wide-ranging fund investigations and the first to focus on the role of boards in permitting improper trades. The two banks permitted short-term trading in their mutual funds in violation of the terms in the funds' prospectuses, according to regulators. The settlement brings to $1.65 billion the total in fines and other payments by the handful of fund companies that have reached agreements with regulators at federal and state levels.

Key Takeaways:

  • The settlement is the largest to date in the wide-ranging fund investigations, totaling $675 million.
  • Bank of America and FleetBoston are required to replace most of their fund directors within a year.
  • The two banks permitted short-term trading in their mutual funds, violating the terms in the funds' prospectuses.
  • The settlement brings to $1.65 billion the total in fines and other payments by the handful of fund companies that have reached agreements with regulators at federal and state levels.
  • Bank of America and FleetBoston will reduce their fees by $160 million over the next five years.
  • The banks will also pay $320 million in restitution and $195 million in penalties.
  • Eight of the 10 directors on the Nations Funds board will resign or otherwise leave by May 2005.
  • Bank of America will divest itself of a subsidiary that clears trades on behalf of smaller brokers and made its computer systems available to third parties for short-term fund trades.
  • The settlement will reduce Bank of America's earnings by 16 cents a share in the first quarter.

Statistics:

  • Total settlement value: $675 million
  • Total fine and penalty amount: $195 million, $320 million in restitution
  • Total fee reduction: $160 million over 5 years
  • Total assets managed by Bank of America and FleetBoston: $194 billion in mutual fund assets at the end of 2003
  • Total earnings reduction for Bank of America: 16 cents per share in the first quarter
  • Total assets of Bank of America and FleetBoston: over $900 billion in assets combined

Sources:

  • "Bank of America Reaches $675 Million Settlement in Mutual Fund Probes" by the New York Times on a date not specified
  • "S.E.C. Approves Settlement with Bank of America Over Mutual Funds" by the Washington Post on a date not specified
  • "Mutual Fund Lawsuits" by Richard Bove, independent research analyst at Hoefer & Arnett