Investments

BofAÕ $16 billion settlement on hold due to SEC fight

SEC commissioners split on granting waivers for relief

The record-setting settlement between Bank of America (BAC), the U.S. Department of Justice, certain federal agencies and six states to resolve claims over toxic residential mortgage-backed securities is on hold due to political in-fighting at the Securities and Exchange Commission, according to a report from Bloomberg.

In August, BofA agreed to a $16.65 billion settlement over toxic mortgages, collateralized debt obligations and an origination release on residential mortgage loans sold to Fannie Mae and Freddie Mac in the run-up to the financial crisis.

But according to a new report from Bloomberg, the settlement is “being held up” by an internal fight at the SEC over whether certain additional sanctions should be waived or not.

From the Bloomberg report:

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 (familiar with the story).

In the Bank of America case, two Democratic commissioners are balking at granting the firm's 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 due to a conflict, they said. With the two Republicans on the other side, the commission is locked in a stalemate.

The Bloomberg report states that the SEC’s internal fight is holding up only the SEC portion of the settlement.

At the SEC, there are three main penalties that banks seek waivers for when they settle cases, with the harshest a ban on managing mutual funds. Another prevents banks from raising money for private companies. The third, and most minor, takes away a privilege that allows a firm to issue its own shares or bonds without SEC approval.

For Bank of America, the biggest hold-up is over the waiver that will allow the bank to continue seeking investors for private firms, such as technology companies that haven’t yet gone public and hedge funds, the people said.

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