Bank of America and FleetBoston Financial have agreed to pay $675 million to resolve charges that they helped favoured clients trade mutual funds improperly at the expense of ordinary investors.
The settlement, the largest of its kind, marks another step in New York Attorney General Mr Eliot Spitzer's drive to root out abuses in the $7.5 trillion mutual fund industry. Mr Spitzer announced the settlement jointly with the US Securities and Exchange Commission last night.
Bank of America agreed to pay $125 million in fines and $250 million to reimburse investors, while Fleet agreed to pay $70 million in fines and $70 million in restitution. Each bank also agreed to cut fund fees by $80 million over five years.
The settlement means Bank of America can now focus on completing its purchase of Fleet, timetabled for early April. The companies' shareholders vote today on the $47 billion merger.
Bank of America neither admitted nor denied wrongdoing, and agreed to divest its broker dealer services securities clearing business by year end.
Bank of America was accused of helping clients conduct market timing and illegally trade funds after-hours at stale prices, or "late trading."
Bank of America is the first of the four original companies accused by Mr Spitzer in the fund investigation to settle. The others are Bank One Corp, Janus Capital Group and Strong Capital Management.
The settlements amount to 5 per cent of Bank of America's and Fleet's combined $13.4 billion of 2003 profit.
Last Wednesday, Bank of America agreed to a record $10 million SEC penalty for failing to produce documents in a separate trading inquiry.