The Securities and Exchange Commission will continue to "vigorously pursue" its charges against Bank of America over disclosure of bonuses to employees of Merrill Lynch, a top agency official said Friday.
SEC Enforcement Director Robert Khuzami told a House panel examining the bank's acquisition of Merrill last December the agency will go to trial with its charges, after a judge threw out the SEC's proposed $33 million settlement.
He left open the possibility that the agency could bring additional charges, possibly against bank executives.
Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency took part in the rescue of Bank of America in January because its condition posed a threat to the financial system.
Bair said the FDIC's $2.5 billion risk guarantee was intended to reduce the threat to the system and the deposit insurance fund. This week Bank of America repaid the $45 billion bailout it received.
The SEC "will continue to vigorously pursue our charges against Bank of America and take all necessary steps in an effort to prove our case in court," Khuzami said.
The SEC had accused Bank of America of failing to disclose to shareholders that it had authorized New York-based Merrill to pay up to $5.8 billion in bonuses to its employees in 2008 even though the investment bank lost $27.6 billion that year.
Bank of America had agreed to pay $33 million to settle the charges without admitting or denying wrongdoing, saying it didn't violate disclosure rules but wanted to avoid litigation with the SEC at a time of market uncertainty.
The federal judge, in tossing the proposed SEC settlement with the Charlotte, N.C.-based bank in September, rebuked the agency for not pursuing charges against individual executives of Bank of America.
"The SEC pursued all of the charges we believed were appropriate based on the investigative record and the applicable law," Khuzami said. In the course of the litigation, the SEC will use new information that emerges "to further pursue the facts and determine whether it is appropriate to seek additional charges in this case," he said.
Bair told the House Oversight and Government Reform Committee that Congress needs to set up a "very robust" process for regulators to deal with future failures of financial institutions.
She reaffirmed her support for a new council of federal regulators that could resolve institutions posing a threat to the system in the way the FDIC does with insured banks. The proposal for the new council is in sweeping financial overhaul legislation being voted on by the House.
Bair said she doesn't see a risk of another banking collapse but added, "Congress needs to establish a very robust, very severe resolution mechanism."
"I don't think we have market discipline right now and we need that," she said.
Some Republican lawmakers contend that the government forced Bank of America to take over Merrill, and they have accused the Democratic leaders of the oversight panel of covering up the role of Treasury Secretary Timothy Geithner in the affair.
Geithner was chairman of the Federal Reserve Bank of New York at the time of the merger in December 2008. His spokesmen have said he was not involved in any Bank of America decisions after being tapped for the Treasury post by President Barack Obama last November.
The $20 billion Merrill deal, forged the same September weekend that Lehman Brothers collapsed, was first questioned after Bank of America disclosed that the investment bank would post 2008 losses of $27.6 billion — far more than expected.
Bank of America, which had already received $25 billion in U.S. bailout aid, then asked for and received an additional $20 billion from the government to help offset those losses.
The government's aid to Bank of America "had a stabilizing effect," Bair said.