A final piece of Bank of America’s record $16.7 billion toxic-mortgage settlement is being held up by an internal fight at the U.S. Securities and Exchange Commission, said four people familiar with the case.
The agreement with the Charlotte bank, announced in August, has stalled as the agency’s commissioners wage a behind-the-scenes battle over waiving additional sanctions that will kick in when the settlement is entered in court.
Getting a pass on the penalties, which can affect a lender’s asset-management business and ability to raise capital easily, had once been routine. It’s now a flashpoint, according to the people.
In the Bank of America case, two Democratic commissioners are balking at granting its request for relief, said the people, who asked not to be named because SEC negotiations with companies aren’t public. SEC Chair Mary Jo White, the swing vote, isn’t participating in the discussions because of a conflict, they said. With the two Republicans on the other side, the commission is locked in a stalemate.
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“Until recently, the waiver issues were never viewed as the least bit controversial,” said Jon Eisenberg, a partner at the K&L Gates LLP law firm in Washington.
That has changed as the commission grapples with a highly charged political question: Have regulators been too soft on Wall Street? The debate is now thrusting waivers, once an obscure and technical legal matter, into the spotlight.
For Bank of America, the biggest holdup is over the waiver that will allow it to continue seeking investors for private firms, such as technology companies that haven’t yet gone public and hedge funds, the people said.
Bank of America spokesman Lawrence Grayson declined to comment. A spokeswoman for the SEC also declined to comment.
As negotiations continue, the SEC and the bank asked a federal court in North Carolina earlier this month to delay signing off on the accord.
“Unfortunately, the process of finalizing the settlement has taken longer than the parties anticipated, though the agreement to settle is not at issue,” the two sides wrote in a joint filing.
The settlement resolved a variety of state and federal probes into the bank. The SEC’s portion totaled $135.8 million and, among other things, resolves a suit it filed last year over prime mortgages.
The SEC and Anne Tompkins, the U.S. Attorney in Charlotte, filed similar but separate lawsuits against the bank at the same time, claiming it defrauded investors who bought securities backed by such mortgages. Staff Writer Deon Roberts contributed.