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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 63451 / December 7, 2010
ADMINISTRATIVE PROCEEDING
File No. 3-14153
In the Matter of ORDER INSTITUTING ADMINISTRATIVE
BANC OF AMERICA AND CEASE-AND-DESIST PROCEEDINGS,
SECURITIES LLC, now known as PURSUANT TO SECTIONS 15(b) AND 21C
Merrill Lynch, Pierce, Fenner & Smith OF THE SECURITIES EXCHANGE ACT OF
Incorporated, successor by merger, 1934, MAKING FINDINGS, AND IMPOSING
Respondent. REMEDIAL SANCTIONS AND A CEASE
AND- DESIST ORDER
end of paragraph 1 page 3...........
I.The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Banc of America Securities LLC, now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated, successor by merger (“Respondent”).
II.In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.
III.On the basis of this Order and Respondent’s Offer, the Commission finds that:
Summary1. This matter involves Respondent’s role in certain improper bidding practices that occurred, from at least 1998 through 2002 (the “relevant time period”), involving the temporary investment of proceeds of tax-exempt municipal securities in reinvestment products, such as guaranteed investment contracts (“GICs”), repurchase agreements (“Repos”), and forward purchase agreements (“FPAs”). As described below, these practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal
Respondent2. Banc of America Securities LLC, now known as Merrill Lynch, Pierce, Fenner & Smith Incorporated, successor by merger (“Respondent”), was a Delaware limited liability corporation with its principal place of business in New York, New York. During the relevant period, Respondent was the investment banking subsidiary of the public corporation, Bank of America Corporation (“BAC”), a financial holding company organized and existing under the laws of the State of Delaware with its principal place of business in Charlotte, North Carolina.1 Respondent was registered with the Commission as a broker-dealer pursuant to Section 15(b) of the Exchange Act and as an investment adviser pursuant to Section 203(c) of the Investment Advisers Act of 1940. Respondent was an affiliate of Bank of America, N.A. (“BofA”), a federally-chartered bank and a provider of municipal reinvestment instruments. In January 2007, the Antitrust Division of the Department of Justice (“DOJ”) conditionally granted BAC amnesty from criminal prosecution because, among other things, it voluntarily self-reported possible anticompetitive bidding practices involving municipal reinvestment products to DOJ before DOJ had begun an investigation into the matter and because of its continuing cooperation.
Background
3. State and local governmental entities in the United States from time to time issue tax-exempt bonds and notes, the proceeds of which are temporarily invested pending their use for the original purpose of the offering. A significant portion (over $100 billion a year) of such proceeds is invested in financial instruments tailored to meet specific collateral and spend-down needs. Under the relevant IRS regulations, proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process, which generally occurs contemporaneously with
the offer and sale of the municipal securities. Moreover, compliance with the IRS’s detailed regulations concerning the competitive bidding process for certain types of investments of bond proceeds creates a conclusive safe harbor for establishing the fair market value of the reinvestment instruments. These detailed regulations require the issuer to make a bona fide solicitation for the purchase of the reinvestment instruments. A bona fide solicitation requires, among other things, that the issuer:
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