The Securities and Exchange Commission has filed a settlement enforcement action against Bank of Americas Banc of America Investment Services Inc. for failure to disclose it favored two mutual funds.
Columbia Management Advisors LLC was also charged with aiding and abetting, and causing certain violations.
BofA and Columbia agreed to pay a total of $9.8 million in disgorgement and penalties, and the SEC ordered the bank to distribute the settlement to affected clients.
"BAISI's selection of mutual funds for wrap fee clients was compromised when it favored its own proprietary funds over non-affiliated funds," said Linda Thomsen, director of the SEC's Division of Enforcement. "By using a method to select funds that was at odds with information it provided to clients, BAISI violated its duty of loyalty to its clients."
The SEC order found that from July 2002 through December 2004, BofA made material misrepresentations and omissions to clients who had given them discretion to select mutual funds for them. The clients participated in an asset-based or wrap fee program.
BofA had a fiduciary duty to act in the best interests of its clients and was required to disclose material information concerning conflicts of interest.
"This Order serves to remind the investment adviser community that the Commission will not tolerate advisers placing their own pecuniary interests ahead of their clients, said Fredric Firestone, associate director of the SEC's Division of Enforcement.
The SEC order found that BofA violated provisions of the Securities Act and Advisers Act, and that Columbia aided and abetted. Under the terms of the settlement, BofA and Columbia agreed to censures, cease-and-desist orders, and a total of $9,763,634 in disgorgement, prejudgment interest and penalties, which will be put into a Fair Fund.