SAN FRANCISCO (CN) – Insiders at Bank of America manipulated the market for auction rate securities to increase their profits at the expense of small investors, shareholders claim in a federal class action. (On Thursday, the SEC announced that Bank of America will return up to $4.7 billion to more than 5,500 investors who bought auction rate securities from it before the market collapsed this year. The bank agreed “in principle” to the settlement, the SEC said.)
Shareholders say that CEO Kenneth Lewis and other BofA directors “stabilized” the market for auction rate securities, in which the company had invested heavily, when the market showed any signs of not being liquid. Their illegal maneuvers included bidding on their own accounts without informing customers, allowing revised bids to be submitted after the market deadline and collaborating with some customers by having them bid at auctions and then compensating them in the secondary market with rates higher than the clearing rate set at the auction, according to the complaint.
By 2007, more auctions were failing than succeeding as the market imploded. Directors allegedly sold the securities to unsuspecting investors, leaving thousands of investors with millions of dollars of highly illiquid and essentially worthless investments.
Plaintiffs say the scheme could cost the company billions of dollars in settlements, fines and lost business and has made it the subject of investigations by the Securities and Exchange Commission and the New York Attorney General.
Plaintiffs want their money back, more corporate oversight for Bank of America and other relief the court deems appropriate. They are represented by Michael Ram with Levy, Ram & Olson.