Bank of America has agreed to pay $131.8 million to settle U.S. Securities and Exchange Commission charges that its Merrill Lynch unit misled investors about mortgage securities it structured and sold.
Thursday's settlement marks the latest enforcement action against Wall Street banks over the marketing of collateralized debt obligations prior to the 2008 financial crisis.
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Regulators have said hedge fund firms helped structure some of these CDOs, and then used them to bet against the housing market. These firms have not been targets of formal enforcement actions in the higher-profile cases against the banks.
The SEC said Merrill failed to tell investors that hedge fund firm Magnetar Capital LLC exercised significant influence in choosing collateral underlying two $1.5 billion CDOs, Octans I CDO in 2006 and Norma CDO Iin 2007.
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According to the regulator, Magnetar took equity positions in the CDOs that gave it "substantial leverage" to influence the holdings, and hedged them with short positions.
It said this meant Magnetar's interests might not have been aligned with the interests of investors who wanted the CDOs and their collateral to perform well.