Item
1
Security and Issuer
This Amendment
of the Reporting Persons’ (as defined below) previous statement on Schedule 13D
(this “Amendment”)
relates to shares of auction rate preferred securities (“ARPS”) of BLACKROCK
MUNIHOLDINGS NEW YORK IQUALITY FUND, INC. (the “Issuer”). This Amendment
is being filed by the Reporting Persons as a result of the Issuer redeeming all
of the ARPS held by the Reporting Persons on July 22, 2011. The Issuer’s
principal executive offices are located at 100 Bellevue Parkway, Wilmington, DE
19809.
All
series of ARPS issued by the Issuer that vote together as a single class are
treated as one class. As closed-end funds that issue auction rate
preferred securities do not provide publicly the amount of such securities
outstanding, we established the amount of such securities outstanding by
canvassing the issuers and the managers of the various auctions for such
securities.
Item
2
Identity and Background
This Amendment
is being filed on behalf of each of the following persons (collectively, the
“Reporting Persons”):
-
- Bank of America Corporation (“BAC”)
-
- Bank of America, N.A. (“BANA”)
-
- Blue Ridge Investments, L.L.C. (“Blue Ridge”)
This Amendment
relates to the ARPS that were held for the account of BANA, and Blue Ridge.
The
address of the principal business office of BAC is:
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
The address of the principal business office of BANA is:
101 South Tryon Street
Charlotte, North Carolina 28255
The
address of the principal business office of Blue Ridge is:
214 North Tryon Street
Charlotte, North Carolina 28255
BAC,
through its wholly-owned subsidiaries, BANA, Merrill Lynch, Pierce, Fenner &
Smith Incorporated (“Merrill
Lynch”) and Blue Ridge, is engaged in providing a diverse range of
financial services and products. Since settlements with the Securities and
Exchange Commission and certain state agencies in 2008, Merrill Lynch and
certain predecessors have worked with their customers and issuers of auction
rate preferred securities to provide liquidity to the auction rate preferred
securities market. This has included purchasing auction rate preferred
securities from their customers and working with issuers so that they are able
to redeem outstanding auction rate preferred securities.
Information concerning each executive officer, director and controlling person
(the “Listed Persons”)
of the Reporting Persons is listed on Schedule I attached hereto, and is
incorporated by reference herein. To the knowledge of the Reporting
Persons, all of the Listed Persons are citizens of the United States, other than
as otherwise specified on Schedule I hereto.
Other
than as set forth on Schedule II, during the last five years, none of the
Reporting Persons, and to the best knowledge of the Reporting Persons, none of
the Listed Persons, have been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or was a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws, or finding any violation with respect to
such laws.
Item
3
Source and Amount of Funds or
Other Consideration
No funds of the Reporting Persons were used in the redemption of the
ARPS.
The
Reporting Persons declare that neither the filing of this Amendment nor anything
herein shall be construed as an admission that such person is, for the purposes
of Section 13(d) of the Exchange Act or any other purpose, (i) acting (or has
agreed or is agreeing to act together with any other person) as a partnership,
limited partnership, syndicate, or other group for the purpose of acquiring,
holding or disposing of securities of the Company or otherwise with respect to
the Company or any securities of the Company or (ii) a member of any group with
respect to the Company or any securities of the Company.
Item
4
Purpose of the Transaction
On July 22,
2011, the Issuer redeemed all of the ARPS held by the Reporting Persons.
As a result of this redemption, the Reporting Persons no longer hold any ARPS of
the Issuer.
Item 5
Interest in Securities of the Issuer
(a) - (b) The responses of the Reporting Persons to Rows (7) through (11)
of the cover pages of this Amendment are incorporated herein by
reference.
(c) On
July 22, 2011, the Issuer completed its redemption of all of the ARPS held by
the Reporting Persons, at par value, for a total cash payment of approximately
$116,125,000. The transaction was effected as part of the Issuer’s
redemption of its outstanding ARPS.
(d) No
other person is known by the Reporting Persons to have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, ARPS that may be deemed to be beneficially owned by the Reporting
Persons.
(e) On
July 22, 2011, the Issuer redeemed all of the ARPS held by the Reporting
Persons. As a result of this redemption, the Reporting Persons ceased to
be beneficial owners of more than five percent of the class of
securities.
Item
6
Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer
The
responses of the Reporting Persons under Item 4 hereof are incorporated herein
by reference.
Item
7
Material to be Filed as Exhibits
|
Exhibit
|
|
Description of Exhibit
|
|
99.1
|
|
Joint Filing Agreement.
|
|
99.2
|
|
Power of Attorney.
|
Schedule
II
BAC Foreclosure
Practice Order
On April 13, 2011, the Board of Governors of the Federal Reserve System
(“Federal Reserve”)
issued a cease and desist consent order (“Consent Order”) against Bank
of America Corporation (“BAC”). The Consent Order
makes no finding on any issues of fact or law or any explicit allegation
concerning BAC. The Consent Order describes a consent order that the
Office of the Comptroller of the Currency (“OCC”) and Bank of America,
N.A. (“BANA”), which is
owned and controlled by BAC, entered into addressing areas of weakness
identified by the OCC in mortgage loan servicing, loss mitigation, foreclosure
activities, and related functions by BANA. The Consent Order also states
that the OCC’s findings raised concerns that BAC did not adequately assess the
potential risks associated with such activities of BANA. The Consent Order
directs the board of directors of BAC to take appropriate steps to ensure that
BANA complies with the OCC consent order. The Consent Order requires BAC
and its institution-affiliated parties to cease and desist and take specified
affirmative action, including that BAC or its board: (1) take steps to
ensure BANA complies with the OCC order; (2) submit written plans to strengthen
the board’s oversight of risk management, internal audit, and compliance
programs concerning certain mortgage loan servicing, loss mitigation, and
foreclosure activities conducted through BANA; and (3) periodically submit
written progress reports detailing the form and manner of all actions taken to
secure compliance with the Consent Order. BAC submitted an offer of
settlement to the Federal Reserve. In the offer of settlement, BAC agreed
to consent to the entry of the Consent Order, without the Consent Order
constituting an admission by BAC or any of its subsidiaries of any allegation
made or implied by the Federal Reserve in connection with the matter.
BANA
Foreclosure Practice Order
On April 13, 2011, the OCC issued a cease and desist consent order
(“Order”) against
BANA. The Order identified certain deficiencies and unsafe or unsound
practices in residential mortgage servicing and in BANA’s initiation and
handling of foreclosure proceedings. The Order finds that in connection
with certain foreclosures of loans in it is residential servicing portfolio,
BANA; (a) filed or caused to be filed in courts executed affidavits making
various assertions that were not based on the affiants’ personal knowledge or
review of relevant books and records; (b) filed or caused to be filed in courts
numerous affidavits or other mortgage-related documents that were not properly
notarized; (c) litigated foreclosure proceedings and initiated non-judicial
foreclosure proceedings without always ensuring that the promissory note or the
mortgage document was properly endorsed or assigned and, if necessary, in the
possession of the appropriate party at the appropriate time; (d) failed to
devote sufficient resources to ensure proper administration of its foreclosure
processes; (e) failed to devote to its foreclosure processes adequate oversight,
internal controls, policies and procedures, compliance risk management, internal
audit, third party management and training; and (f) failed to sufficiently
oversee third-party providers handing foreclosure-related services. The
Order requires that BANA cease and desist such practices and requires BANA’s
Board to maintain a Compliance Committee that is responsible for monitoring and
coordinating BANA’s compliance with the Order. The Order provides for BANA
to: (a) submit a comprehensive action plan that includes a compliance program,
third-party management policies and procedures, controls and oversight of BANA’s
activities with respect to the Mortgage Electronic Registration System and
compliance with MERSCORP’s membership rules, terms, and conditions; (b) retain
an independent consultant to conduct an independent review of residential
foreclosure actions regarding individual borrowers; (c) plan for operation of
management information systems; (d) submit a plan for effective coordination of
communications with borrowers related to loss mitigation or loan modification
and foreclosure activities; (e) conduct an assessment of BANA’s risks in
mortgage servicing operations; and (f) submit periodic written progress reports
detailing the form and manner of all actions taken to secure compliance with the
Order. BANA submitted an offer of settlement to the OCC. In the
offer of settlement, BANA agreed to consent to the entry of the Order, without
admitting or denying any wrongdoing.
Gail Cahaly, et
al. v. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Benistar
Property Exchange Trust Co., Inc.(“Benistar”), et al.
(Massachusetts Superior Court, Suffolk County, MA)
Plaintiffs alleged that Merrill Lynch aided and abetted a fraud,
violation of a consumer protection law, and breach of fiduciary duty allegedly
perpetrated by Benistar, a former Merrill Lynch client, in connection with
trading in the client's account. During the proceedings, plaintiff also
made allegations that Merrill Lynch engaged in sanctionable conduct in
connection with the discovery process and the trial. In 2002, following a
trial, a jury rendered a verdict for plaintiffs. Thereafter, the Court
granted Merrill Lynch’s motion to vacate and plaintiffs’ motion for a new
trial. On <?xml:namespace prefix = st1 ns =
"urn:schemas-microsoft-com:office:smarttags" />June 25, 2009, following a
retrial, the jury found in plaintiffs’ favor. On January 11, 2011, the
Court entered rulings denying plaintiffs’ motion for sanctions and punitive
damages, awarding certain plaintiffs consequential damages, and awarding
attorneys’ fees and costs. On February 7, 2011, the Court issued final
judgment requiring Merrill Lynch to pay $9,669,443.58 in consequential and
compensatory damage plus statutory interest, and $8,700,000 in attorneys’ fees
and costs; but denying plaintiffs’ requests for punitive damages and
sanctions. The client, a co-defendant, filed a notice of appeal of the
Court’s denial of its motion for a new trial on or about January 19, 2011.
On or about January 24, 2011, plaintiffs filed a notice of appeal of the Court’s
denial of their motion for sanctions pursuant to Mass. Gen. Laws c. 231 §
6G. On March 1, 2011, the plaintiffs filed a notice of appeal of the
Court’s denial of their requests for punitive damages and sanctions, and the
Applicant filed a notice of cross-appeal on March 15, 2011.
BAC Muni
Derivative Settlement
The Federal Reserve reviewed certain activities related to various types
of anti-competitive activity by certain employees of BAC in conjunction with the
sale of certain derivative financial products to municipalities and non-profit
organizations variously between 1998 and 2003. Following the review, BAC
and the Federal Reserve entered into a Formal Written Agreement on December 6,
2010, to ensure that BAC proactively and appropriately manages its compliance
risk related to certain competitively bid transactions. In addition, BAC agreed
to submit a written plan to strengthen BAC’s compliance risk management program
regarding those same competitively bid transactions, and to promptly implement
that plan once it is approved by the Federal Reserve Bank of
Richmond.
BANA Muni
Derivative Settlement
The OCC reviewed certain activities related to the participation of
certain employees of BANA in the sale of certain derivative financial products
to municipalities and non-profit organizations, and found information indicating
that certain BANA employees engaged in illegal bidding activity related to the
sale of those derivative financial products variously between 1998 and January
2004. Following the review, BANA and the OCC entered into a Formal Written
Agreement on December 7, 2010, to ensure that BANA proactively and appropriately
manages its compliance risk related to various competitively bid transactions,
including those related to derivative financial products to municipalities and
non-profit organizations.
In addition, BANA agreed to do a formal assessment of all business lines
that engage in certain types of competitively bid transactions, to complete a
formal evaluation of the operational policies and procedures applicable to such
businesses to ensure that adequate policies and procedures exist to ensure
compliance with safe and sound banking practices, law, and regulations related
to the competitively bid transactions, and to develop an internal training
program to ensure compliance with all laws and regulations related to
competitively bid transactions. Upon approval by the OCC, BANA must
immediately begin to implement the policies, procedures and programs called for
by the Agreement. Finally, BANA agreed to pay unjust enrichment in the
amount of $9,217,218 to certain counterparties indentified by the
OCC.
Merrill Lynch
(as successor to BAS) Muni Derivative Settlement
On December 7, 2010, the
Securities and Exchange Commission (“SEC”) issued an administrative
and cease-and-desist order (the “Order”) finding that Banc of
America Securities LLC (“BAS”) (which was merged with
and into Merrill Lynch on 11/01/2010) willfully violated Section 15(c)(1)(A) of
the Securities Exchange Act of 1934 when certain employees participated in
improper bidding practices involving the temporary investment of proceeds of
tax-exempt municipal securities in reinvestment products during the period
1998-2002. The Order censured BAS, ordered BAS to cease and desist from
committing or causing such violations and future violations, and ordered BAS to
pay disgorgement plus prejudgment interest in the amount of
$36,096,442.00. BAS consented to the Order without admitting or denying
the SEC’s findings.
Merrill Lynch
529 Plan AWC
On November 23, 2010, the Financial Industry Regulatory Authority (“FINRA”) alleged that Merrill
Lynch violated MSRB Rule G-27 in that during the period January 2002 to February
2007, Merrill Lynch required registered representatives to consider potential
state tax benefits offered by a state in which a client resides as a factor when
recommending a client invest in a 529 plan. But Merrill Lynch’s written
supervisory procedures did not require supervisors to document reviews to
determine if registered representatives had in fact considered potential state
tax benefits when recommending a client invest in a 529 plan. As a result,
Merrill Lynch did not have effective procedures relating to documenting its
suitability determinations in connection with the sale of 529 plans.
Without admitting or denying the findings, Merrill Lynch consented to the
described sanctions and to the entry of findings; therefore, Merrill Lynch is
censured, fined $500,000 and required within 60 days of execution of this
Acceptance, Waiver and Consent (“AWC”) to distribute a
stand-alone letter acceptable to FINRA to each current customer who resided in a
state that offered 529-related state tax benefits at the time the customer
opened an advisor-sold specific 529 plan account at Merrill Lynch from June 2002
through February 2007; the letter will instruct the customers to call a
designated Merrill Lynch phone number with inquiries, concerns or complaints
regarding their 529 investment. The designated number will be available
for 120 days after which the number will contain a recorded message to contact
Merrill Lynch’s college plan services area. If requested within 180 days
of mailing of the 529 letter, Merrill Lynch will assist in transferring or
rolling-over any customer's investment in the specific plan into a 529 plan of
the customer's choice within his/her home state, regardless of whether Merrill
Lynch currently offers such 529 plan, with Merrill Lynch waiving any and all
client fees, costs in connection with the sale, transfer, or roll-over of the
specific plan; and/or any and all client fees, costs due to Merrill Lynch in
connection with the initial purchase of a 529 plan within the customer's home
state using the proceeds of the specific plan. Merrill Lynch shall provide FINRA
semi-annually or upon FINRA’s request, until December 31, 2011, a report
describing each oral/written inquiry, concern or complaint received through the
designated number or any written complaint otherwise received by Merrill Lynch
concerning the specific plan from the 529 letter recipients, along with a
description of how Merrill Lynch addressed or resolved the inquiries, concerns
or complaints of each such customer.
Merrill Lynch
(as successor to BAI) Massachusetts Consent
On November 17, 2010, the Commonwealth of Massachusetts Securities
Division alleged that two employees of Banc of America Investment Services, Inc.
(“BAI”) (which merged
with and into Merrill Lynch on 10/23/2009) sold Fannie Mae and Freddie Mac
federal agency step-up bonds to an investor and that they did not describe the
bonds accurately. The state regulator alleged that BAI failed to supervise
the conduct in violation of M.G.L. C.110a § 204(a)(2)(g). Only BAI was
named as a respondent in the consent order. On November 16, 2010,
BAI submitted an offer of settlement, without admitting or denying the facts and
without an adjudication of any issue of law or fact, and consented to the entry
of the consent order. BAI agreed to a fine of $100,000, to cease and
desist, and to an undertaking to retain an independent compliance consultant and
impose heightened supervision on a representative.
Merrill Lynch
FINRA UIT AWC
On August 18, 2010, FINRA alleged that Merrill Lynch violated NASD Rules
2110, 2210, 3010--in that Merrill Lynch failed to establish,
maintain and enforce a supervisory system and written supervisory procedures
reasonably designed to achieve compliance with its obligations to apply sales
charge discounts to all eligible Unit Investment Trust (“UIT”) purchases. Merrill
Lynch relied on its brokers to ensure that customers received appropriate UIT
sales charge discounts, despite the fact that Merrill Lynch failed to
appropriately inform and train brokers and their supervisors about such
discounts. Merrill Lynch’s written supervisory procedures had little or no
information or guidance regarding UIT sales charge discounts. Once Merrill
Lynch established procedures addressing UIT sales charges discounts, they were
inaccurate and conflicting. Merrill Lynch's written supervisory procedures
incorrectly stated that a discount would not apply when a client liquidates an
existing UIT position and uses the proceeds to purchase a different UIT.
Merrill Lynch’s procedures lacked substantive guidelines, instructions,
policies, or steps for brokers or their supervisors to follow to determine if a
customer's UIT purchase qualified for and received a sales charge
discount. As a result of the defective procedures, Merrill Lynch failed to
provide eligible customers with appropriate discounts on both UIT rollover and
breakpoint purchases. Merrill Lynch failed to identify and appropriately
apply sales charge discounts in transactions reviewed in a sample of customer
purchases in certain top selling UITS. As a result, Merrill Lynch
overcharged customers in this sample approximately $123,000. Following
FINRA's publication of a settlement with another firm concerning UIT
transactions and independent of FINRA's pending inquiry, Merrill Lynch analyzed
its application of sales charge discounts to UIT transactions. As a result
of the review, Merrill Lynch identified customers that were overcharged when
purchasing UITs through Merrill Lynch and in accordance with the undertakings
set forth below, will remediate those customers more than $2 million in
overcharges. Merrill Lynch approved for distribution inaccurate and
misleading UIT sales literature and provided this UIT presentation for brokers
to use with clients. This presentation was subject to the content
standards set forth in NASD Rule 2210(d) and violated those standards.
Without admitting or denying the findings, Merrill Lynch consented to the
described sanctions and to the entry of findings; therefore, Merrill Lynch is
censured, fined $500,000 and agrees to provide remediation to customers who,
during the relevant period, purchased UITs and qualified for, but did not
receive, the applicable sales charge discount. Within 90 days of the
effective date of this AWC, Merrill Lynch submitted to FINRA a proposed plan of
how it will identify and compensate customers who qualified for, but did not
receive, the applicable UIT sales charge discounts. The date that FINRA
notifies Merrill Lynch that it does not object to the plan shall be called the
notice date. In the event FINRA does object to the plan, Merrill Lynch
will have an opportunity to address FINRA's objections and resubmit the plan
within 30 days. A failure to resubmit to FINRA a plan that is reasonably
designed to meet the specific requirements and general purpose of the
undertaking will be a violation of the terms of the AWC. Merrill Lynch
shall complete the remediation process within 180 days from the notice
date. Within 210 days of the notice date, Merrill Lynch will submit to
FINRA a schedule of all customers identified during Merrill Lynch’s review as
not having received an appropriate sales charge discount. The schedule
shall include details of the qualifying purchases and the appropriate discount
and total dollar amounts of restitution provided to each customer. Also
within 210 days from the notice date, Merrill Lynch will submit to FINRA a
report that explains how Merrill Lynch corrected its UIT systems and procedures
and the results of Merrill Lynch’s implementation of its plan to identify and
compensate qualifying customers including the amounts and manner of all
restitution paid.
Merrill Lynch
NASDAQ Settlement
On June 29, 2010, the NASDAQ Stock Market (“NASDAQ”) alleged that Merrill
Lynch violated NASDAQ RULES 2110, 3010 in that Merrill Lynch's supervisory
system and written supervisory procedures were not reasonably designed to
achieve compliance with applicable securities laws and regulations (including
NASD notice to members 04-66) and NASDAQ rules concerning the prevention of
erroneous orders and transactions and frivolous clearly erroneous transaction
complaints. Without admitting or denying the findings, Merrill Lynch
consented to the described sanctions and to the entry of findings; therefore,
Merrill Lynch is censured, fined $10,000 and required to revise its written
supervisory procedures regarding compliance with NASD Notice to Members 04-66
within 30 business days of acceptance of this AWC by the NASDAQ review
council.
BAC ML&Co.
Proxy Rule Settlement
The SEC alleged that BAC violated
the federal proxy rules by failing to disclose information concerning Merrill
Lynch & Co., Inc.’s (“ML&Co.”) known and
estimated losses in the fourth quarter of 2008 prior to the shareholder vote on
December 5, 2008 to approve the merger between the two companies. In
addition, the SEC alleged that Bank of America Corporation (the “Corporation”) violated Section
14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9
thereunder by failing to disclose in the Corporation’s joint proxy statement
filed on November 3, 2008 the incentive compensation that Merrill Lynch &
Co., Inc. could, in its discretion, award to its employees prior to completion
of its merger with the Corporation. On February
24, 2010, a final judgment (the “Final Judgment”) was entered
by the U.S. District Court for the Southern District of New York in both
matters. Under the terms of the Final Judgment, BAC agreed to pay $1 in
disgorgement and a $150 million civil penalty to be distributed to shareholders
as part of the SEC’s Fair Funds Program at a later date in accordance with
further order of the court. In addition, as part of the Final Judgment,
BAC agreed, for a period of three years, to comply with and maintain certain
requirements related to BAC’s corporate governance and disclosure
practices.
Merrill Lynch
CBOE Decision and Order of Offer of Settlement
On April 13, 2010, the Chicago
Board of Options Exchange (“CBOE”) censured and fined
Merrill Lynch $150,000. In addition, the BCC ordered an undertaking
requiring Merrill Lynch to provide the Exchange with a certification within
thirty (30) days of the issuance of the decision in this matter that Merrill
Lynch has corrected the systems problems leading to this case, that all
information reported to the Exchange in accordance with Rule 4.13(a) is accurate
and is being submitted on a timely basis, and that respondent immediately notify
the Exchange of any inaccuracies in any reports submitted pursuant to rule
4.13(a). During all relevant periods herein, Exchange members were
required to submit to the large options position report all customer positions,
which numbered 200 contracts or more in any single option class listed on the
Exchange on the same side of the market along with their customer's name,
address, and social security number or tax identification number. Merrill
Lynch failed to properly submit all required account information for
approximately 1,346 accounts to the large options position report. (CBOE Rule
4.13(a) - reports related to position limits.)
Merrill Lynch
Client Associate Registration Settlement
In September 2009, Merrill Lynch
reached agreements in principle and final administrative settlements with the
Texas State Securities Board and various state securities regulators relating to
the state registration of sales assistants known as Client Associates.
Without admitting or denying wrongdoing, Merrill Lynch agreed to certain
undertakings and regulatory sanctions including reprimand or censure, agreement
to cease and desist sales of securities through persons not registered with the
states, payments of fines, penalties and other monetary sanctions (including
past registration fees) of $26,563,094.50 to be divided amongst the 50 states,
the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and payment
of $25,000 to the North American Securities Administrators
Association.
Merrill Lynch,
BAI and BAS Auction Rate Securities Settlements
In August 2008, Merrill Lynch, BAS
and BAI each reached certain agreements in principal and final settlements
with the Office of the New York State Attorney General, the Massachusetts
Securities Division, various state securities regulators, and the staff of the
SEC (the “ARS
Settlements”) relating to auction rate securities (“ARS”). As the result of
the mergers of BAI with and into Merrill Lynch on October 23, 2009 and BAS with
and into Merrill Lynch on November 1, 2010, Merrill Lynch assumed the
liabilities of BAI and BAS in this matter. Without admitting or denying
wrongdoing, each of the aforementioned entities has agreed to, pursuant to the
terms of each settlement to which it is a party, among others, repurchase ARS at
par value (plus any accrued but unpaid interest or dividends) from certain
eligible customers, use best efforts to provide liquidity solutions for
institutional holders of ARS, participate in a special arbitration process to
the extent that eligible customers believe they have a claim for consequential
damages, refund certain refinancing fees related to ARS, pay a civil money
penalty and compensate other eligible customers who purchased ARS and sold them
at a loss. Each of Merrill Lynch, BAS and BAI has substantially completed
the purchase of those ARS. BAI and BAS also agreed to pay a total civil
penalty of $50,000,000 that will be distributed among the states and U.S.
territories that enter into administrative or civil consent orders related to
ARS. Merrill Lynch agreed to pay a $125,000,000.00 civil penalty that will
be distributed similarly.
BAI
Representative Supervision Settlement
On
October 22, 2009, the SEC alleged that BAI failed reasonably to supervise a
former registered representative who converted certain customer funds, with a
view to preventing and detecting violations of Federal securities laws, as
required under Section 15(B)(4)(E) of the Securities Exchange Act of 1934 (the
“Exchange Act”).
Without admitting or denying the allegations, BAI agreed to enter into a
settlement with the SEC, paid a civil money penalty in the amount of $150,000,
and to comply with certain undertakings. Such undertakings include retaining an
independent consultant to review and evaluate the effectiveness of BAI's
supervisory and compliance systems, policies, and procedures concerning the
following: (1) review of customer accounts and securities transactions; and (2)
periodic compliance inspections. BAI has undertaken to adopt, implement, and
maintain all policies, procedures, and practices recommended by the independent
consultant. Notwithstanding the settlement with the SEC, BAI has identified the
customers whose funds were converted by the former BAI registered
representative, and has reimbursed them in full.
Merrill Lynch
Squawk Box Settlement
On
March 11, 2009, without admitting or denying the SEC’s findings, Merrill Lynch
consented to the entry of an administrative SEC order that (1) finds violations
of Section 15(f) of the Exchange Act and Section 204A of the Investment Advisers
Act of 1940 (the “Advisers
Act”) for allegedly failing to maintain written policies and procedures
reasonably designed to prevent the misuse of customer order information, (2)
requires that Merrill Lynch cease and desist from committing or causing any
future violations of the provisions charged, (3) censures Merrill Lynch, (4)
imposes a $7,000,000 civil money penalty and (5) requires Merrill Lynch to
comply with certain undertakings.
Merrill Lynch
Consulting Services Settlement
On January 30, 2009, Merrill
Lynch, without admitting or denying any findings of misconduct by the SEC,
consented to the entry of an administrative order by the SEC (the “Order”) that (i) finds that
Merrill Lynch violated Advisers Act Sections 204 and 206(2), and Rule
204-2(a)(14) thereunder; (ii) requires that Merrill Lynch cease and desist from
committing or causing any violation or further violations of the provisions
charged; (iii) censures Merrill Lynch pursuant to Advisers Act Section 203(e);
and (iv) requires Merrill Lynch to pay a civil money penalty of $1
million. The Order finds that Merrill Lynch, through its pension
consulting services advisory program, breached its fiduciary duty to certain
current and prospective pension fund clients by misrepresenting and omitting to
disclose material information.
MLPF&S
FINRA OATS/TRACE AWC
On
September 24, 2008, FINRA alleged that Merrill Lynch violated SEC Rules 10B-10,
17A-3, 17A-4, 200(G) of Regulation SHO, NASD Rules 2110, 2320, 3010, 3110, 4632,
4632(a), 4632(a)(7)[formerly 6420(a)(8)], 6130, 6130(d), 6230(c)(6), 6230(e),
6620, 6620(f), 6955(a), Interpretative Material 2110-2, and MSRB Rule G-14 in
that Merrill Lynch, in transactions for or with a customer, failed to use
reasonable diligence to ascertain the best interdealer market and failed to buy
or sell in such market so that the resultant price to its customers was as
favorable as possible under prevailing market conditions; reported to the Order
Audit Trail System (“OATS”) route or combined
order/route reports that OATS was unable to link to the related order routed to
SUPERMONTAGE or SELECTNET or corresponding new order submitted by the
destination member firm due to inaccurate, incomplete or improperly formatted
data; submitted to OATS Reportable Order Events (“ROES”) that were rejected by
OATS for context or syntax errors and failed to repair them; failed to report to
the Trade Reporting and Compliance Engine (“TRACE”) the correct
contra-party identifier for transactions in TRACE-eligible securities; reported
to trace transactions in TRACE-eligible securities it was not required to
report; failed to contemporaneously or partially execute customer limit orders
in NASDAQ securities after it traded each subject security for its own
market-making account at a price that would have satisfied each customer's limit
order; failed to report, or timely report, to the NASDAQ Market Center
(“NMC”) the
cancellations of trades previously submitted to NASDAQ; incorrectly reported to
the NMC the 2nd leg of "riskless" principal transactions in designated
securities and incorrectly designated the capacity as "principal;" failed to
report to the NMC the correct symbol indicating whether it executed transactions
in reportable securities in a principal or agency capacity; failed to report to
the NMC or the FINRA/NASDAQ Trade Reporting Facility (“FNTRF”) the correct symbol
indicating whether transactions were buy, sell, sell short, sell short exempt or
cross for transactions in reportable securities; failed to report to the NMC the
correct execution time for transactions in reportable securities. Merrill
Lynch failed to report, or timely report to the OTC reporting facility the
cancellations of trades previously submitted; transmitted to OATS reports that
contained inaccurate, incomplete or improperly formatted data; failed to
provide written notification disclosing to its customers that transactions were
executed at an average price; failed to provide written notification disclosing
its executing capacity in a transaction. Merrill Lynch failed to preserve
for a period of not less than 3 years, the first 2 in an accessible place,
brokerage order memoranda; in short sale order transactions, failed to properly
mark the orders as short; incorrectly designated as ".W" to the FNTRF last sale
reports of designated securities transactions; incorrectly reported to the FNTRF
the 2nd leg of "riskless" principal transactions in designated securities
because it incorrectly designated the capacity as "principal;" failed to report
to the FNTRF last sale reports of transactions in designated securities;
incorrectly designated as ".PRP" one last sale report; failed to report the
cancellation of one trade previously submitted; failed to report the correct
time of execution of a last sale report; reported the cancellation of one last
sale report it was not required to; and failed to report to the FNTRF the
correct symbol indicating whether it executed transactions in reportable
securities in a principal or agency capacity. Merrill Lynch’s supervisory
system did not provide for supervision designed to achieve compliance re: TRACE,
quality of markets, transaction reporting, short sales, OATS, etc. Without
admitting or denying the findings, Merrill Lynch consented to the described
sanctions and to the entry of findings; therefore, Merrill Lynch was censured,
fined $242,500, and ordered to pay $11,358.65, plus interest, in
restitution. A registered principal of Merrill Lynch shall submit
satisfactory proof of payment of the restitution, or of reasonable and
documented efforts undertaken to effect restitution no later than 120 days after
acceptance of this AWC. Any undistributed restitution and interest shall
be forwarded to the appropriate escheat, unclaimed property or abandoned
property fund for the state in which the customer last resided. Merrill
Lynch shall revise its written supervisory procedures regarding TRACE, quality
of markets, OATS receiving inter-firm route matching statistics, transaction
reporting, short sales, short sales bid and tick test compliance, OATS clock
synchronization, safe harbor compliance, recordkeeping, limit order protection,
the one percent rule, three-quote rule, etc. within 30 business days of
acceptance of this AWC by the NAC. Within 90 days of acceptance of this
AWC, Merrill Lynch’s Compliance Department and trading desks will develop a
written plan to improve its compliance in trade reporting, OATS reporting and
best execution over the 12 months following acceptance of this AWC; identify
individuals responsible for overseeing supervision in these areas; and identify
the resources needed to improve its compliance. At the conclusion of the
12 months, Merrill Lynch's Chief Compliance Officer or designee and one other
registered principal from one of the trading desks shall meet with FINRA
representatives to describe Merrill Lynch's progress in these
areas.
BAI Maryland
Supervision Settlement
On
May 21, 2008, the Maryland Securities Commissioner found that BAI failed to
reasonably supervise two agents who misappropriated monies from customers within
the meaning of Section 11-412(a)(10) of the Maryland Securities Act.
Pursuant to a consent order, BAI agreed to pay a $10,000 fine, cease and desist
from further violations, and incorporate certain remedial measures into
supervisory program.
BAI Wrap Fee
Program Settlement
On May 1, 2008, without admitting or denying the SEC’s finding, Columbia
Management Advisors, LLC (now know as BofA Advisors, LLC) consented to the entry
of an order that found violations of Sections 17(a)(2) and 17(a)(3) of the
Securities Act of 1933, Sections 206(2), 206(4) and 207 of the Advisers Act and
Advisers Act Rule 206(4)-1(a)(5) in connection with BAI’s wrap fee program, the
adequacy of disclosures to customers regarding the program and Columbia
Management Advisors’ receipt of additional management fees as a result thereof.
The SEC order provides that (i) BAI and Columbia Management
Advisors cease and desist from committing or causing any future violations of
Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Sections 206(2),
206(4), and 207 of the Advisers Act, and Rule 206(4)-1(a)(5) promulgated
thereunder; (ii) BAI pay $3,310,206 in disgorgement, $793,773 in prejudgment
interest, and $2,000,000 in civil monetary penalty; (iii) Columbia Management
Advisors pay $2,143,273 in disgorgement, $516,382 in prejudgment interest, and
$1,000,000 in civil monetary penalties; (iv) censures BAI pursuant to Section
15(b)(4) of the Securities Exchange Act of 1934 and censures BAI and Columbia
Management Advisors pursuant to Section 203(e) of the Advisers Act; and (v)
requests that BAI comply with certain undertakings. The SEC order provides
that: (1) within 15 days, BAI place and maintain on its website for at least 18
months disclosures respecting the manner of selecting funds for any
discretionary program and identifying any funds affiliated with BAI or Columbia
Management Advisors that are included in the program and aggregate percentage of
affiliate funds included in such program; (2) within 15 days, BAI place a
summary of the order on its website with a hyperlink to the order and maintain
such summary and hyperlink for at least 18 months; (3) on at least a quarterly
basis and continuing for at least 18 months from the date of the statement in
which it is first included, BAI shall send a periodic statement or report to
each discretionary mutual fund wrap fee client to specifically identify all
funds or fund families advised by any affiliate of BAI; (4) within 90 days, BAI
shall complete a comprehensive review of (i) whether the method of selecting
mutual funds to be included in any discretionary program advised by BAI is
adequately disclosed; (ii) the adequacy of disclosures respecting and
discretionary program advised by BAI; and (iii) the adequacy of the policies and
procedures respecting BAI recommendations to mutual fund wrap clients. upon
completion of the review outlined in (4) above, BAI shall forward a description
of any deficiencies found during the review and the manner in which it plans to
remediate any deficiencies to the SEC. BAI shall then implement remedial actions
to address any deficiencies found in the review within 120 days.
Merrill Lynch
FINRA NAV AWC
On February 28, 2008, FINRA alleged that from January 1, 2002 through
December 31, 2004, Merrill Lynch failed to establish, maintain and enforce a
supervisory system and procedures reasonably designed to: (i) identify certain
opportunities for investors to purchase mutual funds at net asset value ("NAV") under NAV transfer
programs, and (ii) provide eligible investors with the benefit of available NAV
transfer programs. Without admitting or denying the findings, Merrill
Lynch consented to the described sanctions and to the entry of findings;
therefore, Merrill Lynch was censured, fined $250,000.00 and must comply with
the following undertakings: Merrill Lynch will provide remediation to
customers who, during the period January 1, 2002 through notice of acceptance of
this AWC, and qualified for, but did not receive, the benefit of an NAV transfer
program. Merrill Lynch will provide remediation in accordance with a
methodology not unacceptable to FINRA staff (the "Remediation
Methodology"). The Remediation Methodology will be provided in
writing to FINRA staff prior to retaining the third party examiner. Within
60 days from the date of the notice of acceptance of this AWC, retain a third
party examiner to assess Merrill Lynch's remediation and provide a report to
FINRA staff. Within 90 days from the notice of acceptance of this AWC,
Merrill Lynch shall submit to FINRA for review a sample letter notifying clients
of remediation payments. The letter shall not be unacceptable to
FINRA. Within 120 days from the notice of acceptance of this AWC, Merrill
Lynch shall designate and train staff (the "Response Team") to field and respond
to client inquiries in connection with this AWC and the remediation processes
pursuant to this AWC. Within 300 days from the notice of acceptance of
this AWC, Merrill Lynch shall complete the remediation process. Within 360 days
from the notice of acceptance of this AWC, Merrill Lynch shall file a report
with FINRA, and simultaneously with the third party examiner. Within 420
days after the date of notice of acceptance of this AWC, Merrill Lynch shall
require its third party examiner to submit a written final report to Merrill
Lynch, and to FINRA.
BAS NYSE ETFS
Decision
On
October 4, 2007, without admitting or denying guilt, BAS consented to findings
that it violated: 1. NYSE Rule 401(A) by failing to adhere to the
principals of good business practice in that BAS failed to ensure the delivery
of prospectuses in connection with certain sales of registered securities in
violation of Section 5(B)(2) of the Securities Act of 1933; 2. NYSE Rule 1100(B)
by failing to deliver product descriptions to customers that purchased Exchange
traded funds ("ETFs");
and 3. NYSE Rule 342 by failing to provide for, establish and maintain
appropriate procedures of supervision and control including a system of
follow-up and review, with respect to its operational and technological
activities relating to the delivery of product descriptions and prospectuses
with respect to ETF shares and an offering of a certain equity security.
BAS stipulated to the following sanctions: The imposition by the NYSE of :
1. Censure; 2. A fine in the amount of $375,000; and 3. An undertaking to
provide enforcement with a written certification that its current policies and
procedures, including written supervisory and operational policies and
procedures, regarding the delivery of prospectuses and product descriptions are
reasonably designed to ensure compliance with the Federal securities laws and
NYSE rules applicable to the delivery of prospectuses and product
descriptions. BAS provided the NYSE with this written certification within
90 days from the date the hearing panel made the decision in this matter final.
BAS NASD OATS
AWC
On
May 29, 2007, the NASD alleged that BAS transmitted to OATS execution reports
that contained inaccurate, incomplete or improperly formatted data so that the
OATS system was unable to link the execution reports to the related trade
reports in an NASD trade reporting system; erroneously reported to OATS
execution codes with the exception code of "R" for riskless principal trades it
reported under the alternative approach; failed to ROES that were rejected by
OATS for context and syntax errors and were repairable; submitted to OATS route
or combined order/route reports that the OATS system was unable to link to the
related order routed to the NASDAQ exchange or to the corresponding new order
submitted by the destination member firm due to inaccurate, incomplete or
improperly formatted data; failed, within 90 seconds after execution, to
transmit to the trade reporting facility last sale reports of transactions in
designated securities; failed, within 90 seconds, to transmit to the OTC
reporting facility last sale reports of transactions in OTC equity securities;
reported last sale reports of transactions in designated securities to the trade
reporting facility it was not required to report; failed to report to TRACE the
correct contra-party's identifier for transactions in TRACE-eligible securities;
BAS’s supervisory system did not provide for supervision reasonably designed to
achieve compliance with applicable securities laws, regulations and NASD rules
concerning TRACE reporting, order handling and soft dollar accounts and trading;
and transmitted to OATS reports that contained inaccurate, incomplete or
improperly formatted data. Without admitting or denying the findings, BAS
consented to the described sanctions and to the entry of findings; therefore,
BAS is censured, fined $60,000 and required to revise BAS’s written supervisory
procedures concerning TRACE reporting, order handling and soft dollar accounts
and trading within 30 business days of acceptance of this AWC by the
NAC.
BAS NASD ACT
Settlement
On March 12, 2007, the NASD
alleged that BAS failed to accept or decline in the automated confirmation
transaction system (“ACT”) transactions in eligible
securities within 20 minutes after execution. The findings stated that BAS
failed, within 90 seconds after execution, to transmit through ACT last sale
reports of transactions in NASDAQ National Market (“NNM”), NASDAQ SMALLCAP (“SC”) securities and OTC equity
securities. The findings also stated that BAS failed to enforce its written
supervisory procedures for trade reporting and failed to designate as ".T"
through ACT last sale reports of transactions in OTC equity securities executed
outside normal market hours. The findings also included that BAS transmitted to
OATS reports that contained inaccurate, incomplete or improperly formatted data,
effected short sales in certain securities for BAS's proprietary account and
failed to make/annotate an affirmative determination that BAS could borrow the
securities or otherwise provide for delivery of the securities by settlement
date. The NASD found that BAS executed short sale orders and failed to
properly mark the order tickets as short for those orders; failed to provide
written notification disclosing to its customers its correct capacity in the
transaction, that the transaction was executed at an average price and that it
was a market maker. The NASD also found that BAS failed to report to ACT
the correct symbol indicating whether the transaction was a buy, sell, sell
short, sell short exempt or cross for transactions in eligible securities.
In addition, the NASD determined that BAS's supervisory system did not provide
for supervision reasonably designed to achieve compliance with respect to the
applicable securities laws, regulations and NASD rules concerning registration,
SEC Rule 11AC1-6, short sales, bid test and books and records. Without
admitting or denying the findings, BAS consented to the described sanctions and
to the entry of findings, therefore, BAS was censured, fined $56,500 and
required to revise its written supervisory procedures and supervisory
enforcement with respect to registrations, SEC Rule 11AC1-6, short sales, bid
test and books and records.
BAS Research
Settlement
On
March 14, 2007, neither admitting nor denying the findings, BAS entered into an
Offer of Settlement with the SEC to settle allegations that BAS violated
sections 15(c) and 15 (f) of the Exchange Act and Rule 15c1-2(a) promulgated
thereunder. The SEC's Order finds that, during the period of January 1999
through December 2001, BAS violated the antifraud and internal control
provisions of the federal securities laws in connection with BAS' issuance of
research. The SEC Order provides that BAS is censured; BAS shall cease and
desist from committing or causing any future violations of Sections 15(c) and
15(f) of the Exchange Act and Rule 15c1-2(a) promulgated thereunder; BAS shall
pay a civil money penalty of $6 million for violations of Section 15(f) of the
Exchange Act and $10 million in disgorgement plus a civil money penalty of $10
million for its violations of Section 15(c) of the Exchange Act; and BAS shall
comply with certain undertakings. The SEC Order provides that; (1) within
30 days, BAS shall retain a qualified independent consultant to conduct a
comprehensive review of BAS' policies, practices and procedures to prevent the
misuse of material nonpublic information concerning BAS research, to determine
the adequacy of such policies, practices and procedures under Section 15(f) of
the Exchange Act and to prepare a report reviewing the adequacy of BAS' current
policies, practices, and procedures and making recommendations regarding how BAS
should modify or supplement the policies, practices, and procedures to prevent
the misuse of material nonpublic information in compliance with Section 15(f);
(2) within 120 days of BAS' receipt of said consultant's report, BAS shall adopt
and implement all recommendations set forth in the consultant's report; (3)
within 30 days, BAS must undertake to conduct a review of the implementation and
effectiveness of BAS’ policies and procedures relating to its equity research
and investment banking operations to ensure compliance with all terms of the
Order and provide a written report to the SEC setting forth its findings and its
recommendations regarding any revisions or improvements to BAS's policies and
procedures necessary or appropriate to ensure compliance with all terms of the
Order; and (4) within 30 days of the report outlined in (3) above, BAS must
undertake to adopt and implement all recommendations of the report and certify
that BAS's policies and procedures relating to equity research and investment
banking operations ensure compliance with all terms of the Order.
Merrill Lynch
Virginia Settlement
On
October 24, 2006, the Virginia Division of Securities (the “Division”) alleged that
Merrill Lynch: (1) violated Securities Rule 21 VAC 5-20-260 B by failing
to exercise diligent supervision over the securities activities of all of its
agents, including instances of over-burdened branch management; (2) violated
Securities Rule 21 VAC 5-20-280 A 3, by failing to maintain all information
known about customers contained in the FFRS and Merrill Lynch's internal
computer designation for client account profiles ("KDIS"), including the failure
to reconcile such information between the FFRS and the KDI system, and by
failing to establish a supervisory review to ensure that appropriate disclosures
were documented when it offered only the State of Maine 529 plan without
comparison of this plan to Virginia's in-state 529 plan; and (3) violated
Securities Rule 21 VAC 5-20-280 A 12 by failing to consistently notify certain
clients with MLUA accounts of the difference between the fees they had incurred
in the MLUA program and the standard transaction charges they would have been
charged had the account not been in MLUA. Merrill Lynch neither
admitted, nor denied the allegations, but Merrill Lynch admitted to the
Division’s jurisdiction over the matter and agreed to and has changed its
policies and procedures to correct the criticisms noted. Merrill Lynch
also has fulfilled its obligations for SEC-2003-00041 and Merrill Lynch has paid
$75,000 to the Division to defray the cost of the investigation.
BAC AML
Settlement
On September 28, 2006, BAC entered into a civil settlement agreement with
the New York County District Attorney. The agreement provides that, from about
2002 to 2004, BAC had deficiencies in certain internal anti-money laundering
controls and failed to react appropriately to the risk presented by certain
South American money services business customers who moved funds illegally
through BAC. The agreement requires BAC to make a total payment of $7.5 million,
to cooperate with the New York County District Attorney in ongoing
investigations and to abide by anti-money laundering changes recommended by
BAC’s regulators.
BAS NASD MSRB
Rule Violation Settlement
On August 17, 2006, BAS filed eight MSRB Forms G-36(OS) and (ARD) in an
untimely manner in that they were filed from one to five days late. BAS
also failed to establish and maintain a supervisory system reasonably designed
to achieve compliance with the filing requirements of MSRB Rule G-36.
Without admitting or denying the findings, BAS consented to sanctions and to the
entry of findings; therefore, BAS is censured, fined $13,000, and ordered to
certify in writing to the NASD its compliance with the filing requirements of
MSRB Rule G-36, on a quarterly basis for a period of one year, commencing with
the third quarter of 2006.
BAI NASD TRACE
Settlement
On August 8, 2006, the NASD alleged that BAI (i) failed to comply with
TRACE reporting requirements from January 1, 2004 through March 31, 2004 by not
reporting to TRACE certain transactions within 45 minutes of execution and by
reporting to TRACE certain transactions that it was not required to report, and
(ii) failed to have a supervisory system reasonably designed to achieve
compliance with the securities laws, regulations and NASD rules concerning
accurate TRACE reporting. The NASD asserted that such purported actions
violated NASD Rules 2110, 3010, 6230(A) and 6230(E). Without admitting or
denying the allegations, BAI consented to a censure, a fine of $17,500 and an
undertaking to revise its written supervisory procedures regarding accurate
TRACE reporting within 30 business days of acceptance of the AWC.